recommended, the military leaders of our country supports this decision newfield was an appropriate decision for the president to make. is that correct? >> for execution now. >> you thought it was proper for the president to make? >> is the prerogative to take recommendations and make decision and he made that decision and we're executing. >> is something you agree with? >> i agree. >> thank you. you want to thank all of you. i think we probably ran exactly at noon, where we thought we would end. your families are sitting behind you, some of them shivering. and so, they are not just figuratively behind you, but they are literally behind you

and the air-conditioning here is her best, just the way you and your men and women who serve a few robustly. but dirt challenges are tremendous. the support of your family, you will succeed in meeting those challenges. this committee is very, very grateful for the work you do and men and women within the surf. i can't say that enough. i'm sure it adds to some people listening to hearing to be repetitious, but from our perspective we cannot repeat it enough, so we do that with a purpose so that our troops understand exactly how much it can mean to listen to the american people. thank you again and we will hope to get these confirmations done this week. that is also a challenge in, aggressive schedule, but we're up to it just the way you're up to it. thank you.

>> thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] fatback

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>> today on "newsmakers," senator rand paul, one of the founders of the tea party caucus. that is at 6:00 p.m. eastern here on c-span. on capitol hill, the senate was scheduled to take a week-long break, but majority leader reed announced bidders would continue talking about the deficit -- majority leader reid announced that leaders would continue talking about the deficit. they have set a deadline of july 22 to reach an agreement. senators will work on a motion that deals with military operations in libya beginning at 2:00 p.m.

the house returns to lead as the business at 2:00 p.m. eastern on wednesday, with the boats after 230. -- votes after 2:30. >> tune in to see spent on independence day as writers and analysts to c-span -- to and in tusis ban on independence day to see -- tune in to c-span on independence day. it all begins at 10:00 a.m. for a complete list of times, go to c-span.org. >> john brennan unveiled unused

counterterrorism strategy and pakistan -- on velde a and new counter-terrorism strategy on pakistan -- unveiled a new counterterrorism strategy for pakistan. this is about one hour, 50 minutes. >> have never heard it so quiet. that is a sense of our anticipation and excitement about our program today. we welcome you. many on and guests, dear student, faculty, others, we are pleased and honored to host john brennan, the assistant to the president for homeland security and terrorism -- counter- terrorism. it introduced are speaker, we have the perfect person right here in our community.

prof. john mclaughlin is a member of our faculty, holding the position of distinguish practitioner at the philip merrill center for strategic studies. as many of you know, john had a highly distinguished career as a central event -- at the central intelligence agency. beginning in 1972 car racing to the rank of deputy director, acting director in two dozen for. no one could have a keener appreciation of the challenges facing our speaker every day. professor, prepared -- the pressure prepared for the career with the degree in science. he is devoted to students, alumni, and institution- building. prof.. -- professor. >> thank you, dean.

in this last decade, nothing has affected the policies of the united states, indeed, the daily lives of americans, more than the threat of a possible terrorist attack. the impact has been clear on our foreign policies. and how we have employed military forces, how we have built coalitions and used alliances. even before this decade as gerald, the -- was very old, many people work on this long war. by any president in american history, this has turned out to be true. in the process, u.s. counter- terrorism process -- policy has evolved as new threat of appeared. the adversary, beginning about data, has also changed -- about al-qaeda, has also changed.

becoming in some ways, more elusive. with the death of osama bin laden two months ago, the united states has arrived at a milestone of sorts. many are asking what does this mean? how do we assess the threat now? what work remains to be done? what strategy is most appropriate for this new phase? here to discuss this with us today is someone i know to be one of the nation's most dedicated public servants, john brennan, assistant to the president for homeland security and counterterrorism.

it is hard to imagine anyone better prepared for these responsibilities than john brennan. prior to joining the president in 2009, he had a lengthy career in government and in the private sector. counter-terrorism has been a thread running through his career since the early 1990's. a graduate of fordham university and the university of texas at austin, he served for 25 years at the cia, beginning in 1980. during that time, he held major responsibilities in analysis, overseas operations, and leadership at cia headquarters. he served as chief for the cia station in a major middle eastern country and then as chief of staff and deputy executive director at the agency. foreshadowing his current responsibilities, at mid decade, he designed and built the nation's first national counter-terrorism center. following his cia career and prior to joining the obama administration, in the private sector, he was the president and ceo of the analysis corp. and chairman of the intelligence

and national security alliance, an association of public and private sector national security leaders. but for anyone who knows him, there is something greater than the sum of these parts. stated simply, the nation does not have a harder working, more tireless public servant. a person of absolute integrity, dedicated to keeping this country safe. it is my pleasure now to introduce to you john brennan. [applause] >> thank you very much everyone and thank you for being here. thank you for your warm welcome and your decades of service at government institutions and here. it's a special privilege to be introduced by john mclaughlin, a friend and colleague for many years and one of our greatest intelligence professionals. while at cia, he was referred to as the world's smartest man

and was frequently introduced that way and no one ever debated point. nicestlso the world's man and maybe a lot of people don't know, he is also the world's greatest magician. if you have not seen his magic, you are missing out on something. it's a pleasure for me to be here. this is an institution that has instilled in generations of public servants the pragmatic approach a problem selling which is essential for effective conduct of foreign policy. i especially want to thank the center for strategic studies for its emphasis on national security and joining with the office of the director of national intelligence to introduce students to our intelligence community and inspire the next generation of intelligence professionals. manys wonderful to see somebod --so many friends and colleagues

i have had the privilege to work with over many years. you have devoted your life to helping protect this nation from many threats, including the one that brings me here today and the one that has claimed the lives of some of our friends and colleagues -- the continued -- continued terrorist threats from al qaeda. today, we are releasing president obama's national strategy for counter-terrorism, which formalizes the approach we have been pursuing and adapting for the past two and half years to prevent terrorist attacks and insurer al qaeda's demise. qaeda's demise. i am pleased we are joined today by dedicated professionals across the federal government helped shape our strategy and it worked tirelessly every day to keep our country say. -- safe. thank you for being here and thank you for your dedicated service over many years. i want to point out that the unclassified version of our strategy is being posted to the white house website and there'll be copies made available to the public in the coming days. you can go to the white house

website today. in the time i have with you, i would like to put our strategy in context. i would like to outline the key goals and principles and describe how we are putting these principles into practice to protect the american people. i want to begin with the larger strategic environment that shapes our counter-terrorism efforts. this starts with the recognition that this counterterrorism strategy is only one part of president obama's larger national security strategy. this is very important. our counterterrorism policies do not define our entire foreign policy. rather, they are a vital part of and are designed to reinforce our broader national security interests. since taking office, president obama has worked to restore a positive vision of american leadership in the world.

leadership defined not by threats and dangers we will oppose, but by the security, opportunity and dignity america advances in partnership with people around the world. this has enhanced our national security in many areas against many threats. at the same time, many of the president's broader foreign- policy and national-security initiative sought to achieve a more focused counter-terrorism goal. they do so by addressing the political, social, and economic conditions that can fuel extremism and push individuals into the arms of al qaeda. for instance, when our diplomats from with the peaceful resolution of political disputes and grievances, when our trade and economic policies

generate growth that list the blood of poverty, when our development experts support good governance that addresses people's basic needs, when we stand up for universal human rights, all of this can also undermine violent extremists and terrorists like al qaeda. peaceful political, economic and social progress underlies the claim that the only way to change is through violence. it can be a powerful antidote to the disillusionment and sense of powerlessness that can make some individuals more susceptible to viral and ideologies. our strategy is recognizing that our counter-terrorism experts -- at time depend on broader foreign policy efforts, even as our strategy focuses more narrowly on preventing terrorist attacks against our interests at home and abroad. this, obviously, is the first counterterrorism strategy to reflect the extraordinary political changes sweeping the middle east and north africa. it is true these changes may do -- may bring new challenges in the short term as we are seeing

in yemen. it is also true that terrorist organizations and nations that support them will seek to capitalize on the instability that change can sometimes bring. that's why we're working closely with allies and partners to make sure these malevolent actors do not succeed in hijacking this moment of hope for their violent dance. as president obama has said, these dramatic changes mark a historic moment of opportunity. so too for our counter- terrorism efforts. for decades, terrorist organizations like al qaeda have preached the only way to effect changes through violence. that claim has been thoroughly repudiated and has been repeated by ordinary citizens in tunisia, egypt and beyond, who are changing and challenging their governments through peaceful protests, even as they are sometimes met with horrific brutality as in libya and syria. moreover, these citizens rejected the medieval ideology of al qaeda that divides people

by faith and gender, opting instead to work together. muslims and christians, men and women, secular and religious. it's the most profound change in the modern history of the arab world. al qaeda and its ilk have been left on the sidelines, watching history pass them by. meanwhile, president obama has placed the guided states on the right side of history, pledging support for the political and economic reforms and universal human rights people in the region are demanding. this has profound implications for our counter-terrorism efforts. against this backdrop, our strategy is precise about the struggle we face in the goals we seek. one of the most dangerous forms of human error is forgetting what one is trying to achieve. president obama is adamant we never forget who we're fighting or what we're trying to achieve. let me start by saying our strategy is not designed to

combat every single terrorist organization in every corner of the world. many of which have neither the attend our capability to attack the united states or our citizens. -- be it the intent or capability to attack the united states or our citizens. iran and syria remain a leading state sponsors of terrorism. hezbollah and hamas threaten israel and our interests in the middle east. we will continue to use the full range of our foreign policy tools to prevent these regimes and organizations from endangering our national security. president obama has made it clear the united states is determined to prevent iran from acquiring nuclear weapons. we will continue working closely with allies and partners, including sharing and acting upon intelligence to prevent the flow of weapons to of moss and hezbollah and protect our citizens and interests. -- weapons to hamas. the network that poses the most

significant threat to the united states is al qaeda, its affiliates and its adherents. we use these terms deliberately. it is al qaeda, a core group founded by osama bin laden, as murdered our citizens in the bombings of our embassies in kenya and tanzania to the attacks of the u.s. as coal, to the attacks on september 11th, which has also killed more than citizen -- more than -- killed citizens of more than 90 other countries. groups that are part of its network or share its goals that have also attempted to attempt our homelands. it was al qaeda in the arabian peninsula, based in yemen, that tended to bring down an airliner over detroit and which put explosives and cargo planes bound for the united states. it was the taliban and pakistan s sent a man on a failed attempt to blow up an suv in times square.

it is a al qaeda is in here adherents,individuals, sometimes with little or no physical contact to al qaeda had succumbed to its hateful ideology and have a engaged in or facilitated terrorist activities in the united states. these misguided individuals are spurred on by the likes of -- -- we have seen the tragic results of that military murder and the attack in fort hood did this is the first counterterrorism strategy that focuses on the ability of rocket and its networks to inspire people to attack us -- of al qaeda and its networks to inspire people to attack us from within.

president obama have made it a priority to renew american leadership in the world, strengthening our alliances, deepening partnerships. al qaeda seeks to make america look like an enemy to the world's most and -- world's muslim. al qaeda 6 to bleed as financially by dryness into a long drawn-out wars that

inflame -- seeks to lead us financially by driving us into long, drawn-out wars that enflame anti-american sentiment. we will be aware that our best offense will not always be deploying large armies abroad, but rather delivering targeted, surgical pressure to the groups that threaten mass. al qaeda seeks -- the united states will continue to expose a rocket as nothing more than murderers. the report to be islamic, apparently the religious leaders more scholars. there is nothing islamic or holy about slaughtering innocent men, women, and children. they claim to protect muslims. the vast majority of the population that are victims are innocent men, women, and children. it is why their ranks of

supporters continued to decline. just as our strategy is precise about to our enemy is, it is clear about our posture as well as our goal. this is a war -- a bottom, sustained, integrated campaign -- broad, sustained an integrated campaign. we need nothing less than the art to their destruction -- but other destruction of the evil called al qaeda. we need to dismantle the core of al qaeda, its leadership in the tribal regions of afghanistan, its abilities to reestablish the safe haven. in other words, we in to render the heart of al qaeda and capable of launching attacks on our homeland, citizens, our allies, as well as preventing this group and its affiliates and adherents from doing so. at the same time, hopefully a kid and means to address the serious threat posed by the -- this does not require a global

war. it does require a focus on specific regions, including what we might call the periphery, places like yemen, somalia, iraq -- it is another important distinguishing factor. it has looked increasingly to other groups and individuals to take a because, including the gold strike and the united states. we a specific and focus counter- terrorism and objectives. we're protecting our home and by constantly reducing our vulnerability is and not acting -- and adapting our abilities. we're the greatest al qaeda's capabilities and disrupting its operation. we're degrading the capability of al qaeda senior leadership to inspire, to nicki with, and direct the operations of its adherents from the world.

we are aggressively confounding their ideology, which exploits often and local legitimate grievances. we're depriving al qaeda of its enabling means, including illicit financing college is a support -- financing, and legitimate support. president obama is leading the global effort to secure the world's most volatile materials in four years. and a specific resort, these goals are not new. they tracked closely with the goals of the previous administration. if this illustrates another important element of the strategy, and needs to represent a wholesale overhaul, a whole so retention of previous policies the approach to counter-

terrorism is pragmatic, not a ideological. it is based on what works and what our experience has been. it is built on policies and practices that have been instituted and refined over the past decade, in partnership with congress, a partnership that we're determined to continue, and let an evolution in the air and is in the of the threat, the capabilities of our government -- , and an evolution in the understanding of the threat, the capabilities of our government. the principles that are guiding our efforts to destroy the al qaeda -- first among year using every lawful tool and up 40 bank available. -- first, we are using every lawful tool and of 40 -- but 40 -- a 14 -- of 40 -- authority available. we have strength and

intelligence. we are constantly working to learn from our experiences. calling the attack at fort hood and the failed attack over the short -- following the attack at fort hood and the failed attack over detroit, we have changed our processes. we have strengthened our military capabilities and increased the size of our special forces, set up the deployment of unique assets so that al qaeda could joint a safe haven, and so that our professionals are working more closely together than ever before. we have strength and a change -- strengthens homeland security. we have more partners if. we are sharing more information. we're preparing for by of terrorism. in taking these steps, we're all feeling key recommendations a and 9/11 commission.

we have increased aviation security by strengthening our watch list procedures and sharing information in real time. enhanced screening of cargo. for the first time, ensuring 100% screening of all passengers traveling in, too, and from the united states, which was another recommendation on of that commission. we're constantly assessing an improving our professions, -- in addition, we're using the full range of law enforcement tools to build an incorrect and endurable legal friend or for the war against al qaeda. this -- to build a correct and enduring legal argument for the war against al qaeda. it also includes reforming

military commissions, which, at times, offer unique advantages. this includes the recently renewed patriot act. we must have our legal friend or that provides are extraordinary professionals with all of the tools they need to do their jobs and keep our country safe. we must not and will not tie their hands. for all of these tools to work properly, and department need to see the cost of federal government working properly. today, our personnel are working more closely together than ever before. as we saw in the operation that killed bin laden, that success was not due to any one person, but was the result of many people working together closely over many years. that is what we will continue to do. even as we use every tool in our government, we are guided by a second principle, the need for partnership with institutions and countries around the world. as we recognize that no one

nation can bring about al qaeda's demise. over the past decade, we have made enormous progress. . this includes greater cooperation with multilateral institutions such as nato allies and regional organizations such as the association of southeast asian nations and the southeast african union. we have also increased our efforts to build the capacity of partners of that they can take the fight about it in their own countries. that is why a key element of the president's strategy in afghanistan afghan security forces. it's why we will soon begin the transition -- so that afghans can take responsibility for their own security. it is why i wanted to continue. -- why we wanted to continue. our relationship but pakistan is not without tension or frustration. we are working with our partners to overcome differences and

continue our efforts against our common enemies. it is essential that we do so. as frustrating as this relationship can sometimes be. pakistan has been critical to many of our most significant successes against al qaeda. tens of thousands of pakistanis, militaries, civilians, have given their lives. despite recent tensions, i am confident that pakistan will read -- will remain one of our most important partners. these kinds of partnerships are vital. the critical intelligence that allowed us to discover these shipments on, as was provided by or saudi caribbean partners. a kid in iraq has suffered major losses at the hands of iraqi street forces, -- al qaeda in iraq have suffered major losses at the hands of the iraqi street forces. recent gains linked to age --

recent gains show why our relationship with al qaeda -- pakistan is so important.

this brings me to our fourth principle. in fact, the one that gets all the others. and all our actions, we will uphold the quarter volumes -- core values of the finest

americans. i anderson and that truly breathtaking capabilities of our intelligence and counter terrorism civilians. we must never forsake the values and ideals that america represents to the world. when we fail to abide by our values, we fall right into the hands of al qaeda. conversely, when we uphold these valleys, it sends a message to people around the world that is america, not al qaeda, that represents opportunity, and dignity, and justice. living are now is helps keep us safe. as americans, we stand for human rights. that is why, in the first days of office, president obama made it clear that united states of america does not torture. that is why he banned the use of enhanced interrogation techniques which do not work. as americans, we will uphold the rule of law at home, could any privacy, civil rights, and civil liberties of all americans.

we will never waver in their conviction that the united states be more secure the day that guantanamo bay is closed. when we remember that diversity of faith and background is not a week as of america, but a strength, when we show that americans -- that muslim americans are part of our american family, when we remember that islam is part of america, we show that there could never really be war with islam. these are our core principles. this is a strategy that has enabled us to put al qaeda under more pressure than at any time since 9/11. we have destructive plots here at home, including the plots of

azazi to bomb the new york train system. finances to qaeda's its weakest point in years. along with our partners in pakistan and yemen, we have shown them that they can have no safe haven. al qaeda leadership ranks have been decimated with more keyed is eliminated in rapid succession than at any other time since 9/11. al qaeda's third ranking leader has been killed. one of the al qaeda most dangerous commanders is reportedly killed. operators in yemen have been killed. the leader of the pakistan taliban has been killed. the leader of al qaeda in east africa and the mastermind of the bombings of the embassies in

africa have been killed. in more than half of al qaeda leadership has been limited. yes, about it is adapted and resilient, but it has been forced to do so with less experienced individuals. that is another reason why we and our partners have stepped up our efforts. if we hit al qaeda hard enough, there will come a time when they simply can no longer replenished their ranks with skilled leaders. that is the up if we hit them hard enough, there will come a time when they can no longer replenish their ranks with skilled leaders. that is the direction in which we are headed today. now with the death of osama bin laden, we have struck our biggest blow against al-qaeda yet. perhaps most significantly, al- qaeda's symbolic figure who has inspired so many others to violence. in his place, the organization

is left with an aging doctor who lacks osama bin laden's charisma and the respect of many. the fact that it took so many weeks for them to settle on hi zawahiri suggests the disarray at the highest levels. taken together, the progress allows us for the first time to envision the demise of their core leadership in the coming years. it will take time, butmake no mistake. -- but make no mistake. al-qaeda is in its decline. this is by no means to suggest that serious threats have passed. he may attempt to demonstrate his leadership, and al-qaeda may try to show its relevance with new attacks. individuals may seek to avenge osama bin laden's death. more innocent people may tragically lose their lives. it does not mean the destruction of the al-qaeda network. aqap remains the most active in the network.

it poses a serious threat to the united states. sl shabad continues to call for strikes against the united states. we will not let our guard down. we will continue to pummel al qaeda and its ilk. we will remain vigilant here at home. still, as we approached the 10th anniversary of the 9/11 attacks, as we seek to understand where we are, we need to look no further of the compound where osama bin laden spent his final days. he was there for years, isolated from the world. but even he understood the sorry state of his organization and its ideology. --ormation's seized from the information's seized from the -- information seized from the compound reveals his concerns about long-term viability, calling for more large-scale attacks against americans but

encountered resistance from his followers. he went with years without seeing any spectacular attacks. he saw his senior leaders being taken down one by one. he was worried about being able to replace them effectively. perhaps most importantly, osama bin laden said al-qaeda is losing the battle for hearts and minds. the murdering of innocent civilians untarnished al- qaeda's -- civilians, most of the muslims, had tarnished al qaeda's image in the world. he knew that he failed to portray america as being at war with islam and worried a recent focus had prevented more muslims from rallying to his cause so much so that he continue -- considered changing its name. we are left with a final image seen around the world. an old terrorist, alone, hunched over in a blanket, flipping through old videos. history as fast leaving him behind.

this fight is not over. guided by the strategy we are releasing today, we will never waver in our efforts to protect the american people. we will be precise about our enemy and use every tool at our disposal and apply them wisely. we will continue to forge strong partnerships around the world and build a culture of resilience here at home. as americans, we will continue to uphold the ideals and core values that inspire the world to help keep us safe. president obama said we have put al-qaeda on a path to defeat and we will not relent until the job is done. i want to thank sais, dean einhorn, john mclaughlin, to allow me to unveil this strategy for counter-terrorism here today. i think you very much. -- thank you very much. [applause]

>> mr. brennan has consented did taking some questions. >> since i know the media has frequent access to him, i am going to give priority for questions to our students, faculty, and invited guests. there is a microphone here that will come to you as you raise your hand when i recognize you. please state your name and give your question. please confine it to one question. right here. >> good afternoon and thick for -- meant you -- thank you for coming. i am a student at george mason university. i have a question about the terrorist detainee's. he said that the president wants -- you stated that the president wants t to close at

guantanamo bay. has there been a decision yet about those that are held there? >> congress has expressed concerns about the closure of guantanamo bay facility. we have released a number of individuals from guantanamo since president obama has been inaugurated, transferring many overseas to their countries of origin or to third countries. there are a number of individuals moving into the prosecution path, notably the co-conspirators of 9/11. so, there is a population in omantanamo now, some of whic will be prosecuted, and some who will possibly be transferred abroad. so, what the president said it is he wants to close guantanamo responsibly and in a way that does not threaten american security. this is something we will

continue to work with the congress about. it requires congressional support and partnership. this is something that is still very much a policy of this administration, but we are not going to do it in a manner that jeopardize our security or does not take into account the very unique circumstances of those cases. >> yes? >> you had mentioned al-qaeda and the arabian peninsula, the single most dangerous location -- affiliate of al-qaeda. yemen looks to be heading toward chaos. perhaps even state failure. can you give us more detail on how you see us proceeding moving forward dealing with yemen to try to get them more effective in fighting al-qaeda? >> thanks, bruce. all the elements present a serious threat.

al qaeda inthe peninsula is the most -- in the peninsula is the most operational in -- operationally active. it gives us concern that they have been able to use yemen as a training area to launch these attacks against us. there is a fair amount of political turmoil right now in yemen. president saleh is still undergoing medical treatment. our position from a political standpoint is the gcc initiative is the best path forward to resolve yemen possess a crisis. we have worked with them over the past several years, building up their counter- terrorism capabilities. just like in pakistan where thousands of pakistanis have fallen prey to terrorist attacks, yen and security -- yemeni to their purity -- yet many security -- yemeni security

i officers have died as a result of those attacks. there are many elements in yemen right now that are opposed to al-qaeda expanding its capability as well as its control of the territory. yemen is a patchwork of various tribes and political groupings, political power centers. we are working very closely with a number of counter- terrorism elements. one thing we have insisted on is the support that we provide only be used against al-qaeda and not be used in any way shape or form -- way, shape, or form against yemenis citizens who are protesting as they have a right to peacefully. we have been very vigilantthis is something that we will the counter terrorism cooperation needs to continue to grow. there are obvious limitations. president obama has committed to yemen that we will be strong partners.

we see a direct threat to the homeland here. all anwar al-awlaki -- anwar al- awlaki is a very dangerous individual. the threat from aqap is real and serious. it is something that we will need to continue to work on. at the framework that we are working on is to build up their security and provide them with the intelligence that they need and to partner with them when it is something that we believe not we can do and -- that we can do and that it is something that we can do to be done to protect our interests. it is going to be a long haul though. >> the student right there in the middle. yes. >> a good afternoon, sir, and think you for visiting. -- thank you for visiting. the recent killing of osama bin laden has led many to speculate about the relationship between al-qaeda and the pakistani government. could you comment on that

speculation? >> to my knowledge, the pakistani leadership, military, political, intelligence, was caught totally unawares by the fact that osama bin laden was found close to its military academy and not too far from the nation's capital. they are trying to figure out why in fact he was able to be there for six years. at that is not to say that there are some elements within the pakistani establishment that where knowledgeable. -- were knowledgeable or provided assistance. looking at that situation, osama bin laden and the people at that compound practiced absolutely phenomenal -- he was there for six years. it to our knowledge, he never left that compound. the people at the compound -- most of them never left either. there were a couple of folks that provided the type of support that he needed.

so this is something -- i do not know how many people in al- qaeda and the senior leadership ranks knew where he was, but he was someone who knew if he'd let it be known his whereabouts, his days were going to be numbered. i think he became relaxed in the area. abbotabad.d a ba he was totally taken by surprise when our navy seals confronted him that night. i have not seen anything. this was one of the big questions that we raised reight away with the pakistani government. what gives? they try to figure out the same thing. but, pakistan is a large country. it is one of their lessons learned right now in terms of what they need to do to make sure they are aware of what is happening. and there have been individuals

in the past from al-qaeda dattht have used the area as a transit point. >> in the front row. >> brad just ask the first -- asekd the -- asked the first question that i had in mind. clearly, one of our preferred tools for dealing with al-qaeda and its militants is targeted killing. i understand that it is perfectly legal. in that sense, i have no problem with it. it strikes me how much we rely on that to include targeting some people who are american citizens. it is that problematic in the long run? not from a legal point of view, but from a reputation appointive you for what it may bring back -- reputation point of view, for what it may bring

back to us from the way that we imagine ourselves? >> without speaking to any particular operational activities or abilities, let me address the question this way. first of all, from the standpoint of american citizens, you know, when are brave the u.s. military forces in afghanistan and iraq are fighting and they see it is the taliban or aqi in iraq or others coming at them, they do not first check to see if they are u.s. citizens. window, in fact -- we know, in fact, thatthere have been folks that have -- that there haven't -- have been folks that have been fighting in these areas that are u.s. citizens or whatever. these people have made a decision to join the enemy to

fight against the united states of america. it just like we are doing in places like iraq and afghanistan, we are protecting our interests. we did not pick this fight. one of the things that president obama has been consistent on is we are exceptionally precise and surgical in terms of addressing the terrorist threat. by then, i mean if there are terrorists within an area where there are women and children and others, we do not take such action that might put those innocent men, women, and children in danger. at the types of operations that the u.s. has been involved in for the past year -- there has not been a single collateral death because of the exceptional proficiency, precision of the capabilities we have been able to develop. we try to make sure that we only use this type of capability in force against those individuals who are presenting a threat to us. if they happen to the afghan citizens or citizens of other countries including of our own, what we cannot do is allow them to hide behind their citizenship and passports.

there are certain requirements under law in terms of whether we know somebody it is a citizen there are certain things that we need to be able to do appropriate and consistent with our legal framework. but the president wants to make sure that we are following the letter of the law in these cases. >> yes, right here in the second row please. >> hi, my name is tiffany star, and we appreciated your speech today. what do you think the community has learned in the last 10 years? what we doing with that learning experience? >> the intelligence community? >> yes. >> well, we were talking right before about where we were

during 9/11 and what the environment was like. we were on the floor of the cia headquarters. when we got hit with those plans, we were still at this stage of trying to figure out how serious the threat from al- qaeda was. there were so many reports about some many different operatives, cells, plots, plans, what ever. -- whatever. we were facing the anthrax attacks here as well. we knew that they were pursuing by terrorism and nuclear materials. and so, i think one of the things that we have learned most since 9/11 is we have a much better handle on al-qaeda as an organization. our ability to prosecute over the last decade our efforts against al-qaeda is because of the work that has been done quite intelligence -- by intelligence professionals, homeland security professionals,

and the military. every day, we see that american lives have been lost because of our efforts to learn more about them. the seven cia men that were tragically killed last year -- these are brave men and women who leave their families behind so they can gain more information and insight into where al-qaeda is so we can direct our efforts against them. because of the 10th anniversary of 9/11, it is a testament to the tremendous work that the intelligence community and others have done, bringing together not just the intelligence but also marion it -- marrying it with the capabilities that we have been able to develop. so, i think the lessons are we know more about the nature of the threat. one of the things that we have learned is that this has to be a whole of government oeffort. the efforts i have seen it --

the best operations i have seen really involves the integration of effort of resources, capabilities, and expertise among various agencies. i refer to a continuum of engagement. you could have coronation and -- coordination and integration. for many years, and the government was trying to de- fonclit. -- de-conflict. that the more, we see at th u.s. military, cia, homeland security are working on these issues. whether it be in counter- terrorism or whether it be in the trenches in afghanistan or iraq, it is been a tremendous evolution in our approach. and that integration is something that we need to continue to do. i am a strong believer in a lot of the departments and agencies that were set up in the 19th and 20th centuries that were

designed for those problems. we need to be able to make sure we can leverage all of the capabilities in a concerted fashion. >> i am looking for a student here. you do not have to be a student. [laughter] right here in the second row. >> thank you. you mentioned iran as a sponsor of state terrorism. i was wondering what you thought their interest was in the arab spring and what that means for u.s. national security. >> that is a good question. was looking qaeda into what was happening with the arab spring, iran was doing the same thing. they're trying to exploit some of the instability that has taken place in certain countries

in the way -- as a way to contact their relationships directly. we see that they're trying to operate in different countries by establishing relationships with the groups that were made be out of favor six months ago and are now coming into favor. also, i think that what they're trying to do is what they can do to give us a black eye in certain areas. it is clear that we are engaged in this tug-of-war with iran over its obligations of a nuclear front. it continues to refuse to live up to its obligations. they have been affected significantly by sanctions and other measures that we have taken. it is no secret that iran is trying to undermine a number of our interests, which is to promote the development of democratic movements and making sure that people in these different countries are able to realize their aspirations. from my perspective, i think we need to be mindful that iran has

a certain agenda. it does have certain inroads in countries that have shia populations. they tried to operate within those communities. iran, i think, has not experienced its spring. hopefully, i think the people of iran will be able to realize the democratic government would of these days that really can fulfill their aspirations as well

>> in the front row. >> in helping the libyan operation, how are we helping al qaeda-affiliated groups? had we minimize that risk? >> we have been very cognizant of the fact that there have been portions within libya that have served as a base for a number of extremist organizations. there are -- we are concerned about the disarray and turmoil in libya, particularly in weapons stockpiles of have come under siege by various groups. i think the u.s. position, as was the position of our allies is that we will work deliberately with the opposition elements that have developed in the east as well as in the west. we're mindful that al qaeda and other extremist organizations are trying to tell what the situation. -- trying to exploit the situation. that is why we have to be measured in the way we deal with the bombing situation inside libya. i have traveled out to algeria and other countries in the region to talk to them about the threat of al qaeda and what we need to do together. so we are partnering with the nations in the area, working with them, try to build up their capacity, trying to

provide the intelligence they need to be able to identify these elements that are on the rise. >> in the second row. >> thank you. humans of a whole of government approached several times. please describe to us the relationship between the defense the element and the diplomacy communities in counter-terrorism. >> the defense development and diplomacy come together when you look at two particular countries -- yemen and somalia. i reside over interagency groups that look at those two countries in -- killer because of the counter-terrorism challenge there. but i also recognize that our ability to progress is dependent on these countries being able to deal with their very, very serious problems.

they have social economic problems. yemen, with this water resources that is being depleted and its oil that is being depleted, and employment probably a 40% or 50%. there are so many issues there. what we are doing is look at what we need to do on the counter terrorism front cared whether we doing any engagement with the yemeni, the saudis, and others on how to address the issues right now that are at stake in yemen could. -- in yemen. we're trying to make sure they're integrated. one of the challenges we have now and one of the debates that is ongoing is that, in light of the instability in yemen, should we not stop this assistance that is going to them because it could get to the wrong hands?

to me, i think it is important -- president saleh is now in saudi arabia some are criticizing us for being only interested in counterterrorism. it is not true. the people of yemen have been terrorized by the many problems they face. we are concerned with al qaeda, but this is the time we make sure we do not abandon the yemeni people, whether government is under siege -- when their government is under siege. we need to make sure that we bring together that diplomacy, the development assistance, and the counter-terrorism efforts. the same is true in somalia. looking in all the refugees and the people who are miller stands start, we need to find ways for the non-criminal

organizations to get in there and bring relief supplies. a lot of the means we have, we say, okay, we want to make sure that these ngo's have the licensing approvals to operate their. -- to operate there. i have said that i do not want the counter terrorism tail to wag the dog. we should not be doing things in yemen or somalia solely because we have a counter terrorism agenda there. one of the things about president obama and president bush before him is making sure that we do things that will benefit in the long term these people in these areas. because these groups strive off of the instability. there are very legitimate grievances. we need to be able to work with local communities that are out there, governments and interest groups to deal with those issues.

>> front row here. >> do you worry that public support for the war on terrorism will wane over time with the domestic problems we have, the economy, the debt, and the sense that killing osama bin laden as turned the page on war? >> we intensely do not use the term "war on terrorism." we are at war with al qaeda. i think there is a concern that there are some folks out there who believe that, because we have not suffered a spectacular attack at the hands of al qaeda in the past decade that the threat is not as serious and grave. they keep talking about our successes and that we're taking a lot of these leaders of the

battlefield. that may be a perception that some folks in the american public have. if you were to bolster the counter-terrorism community throughout the government and other areas, they see real threats still out there. coming up on the 10th anniversary of 9/11 -- we want to make sure we are as vigilant and poised to detect and force these attacks. working with congress, do nothing there's any illusion within those folks that this is an effort that we need to maintain. i would like to think that, over time, we would be more efficient on how we apply our resources, knowing more about the threat. and maybe automate more of these activities. we have come such a long way as a result of technology and integrating the different

databases and systems, we have been able to do things with less people who actually have to manually put things in. i want to make sure we are able to maintain the appropriate amount of resources so we continue to prosecute these suffers who help us to detect -- this effort that will help us to detect these threats and beat brazil and can but also maintain our ability -- maintain our pride to posture. -- maintain our pro-active posture. if we're relend to this point, we want al qaeda to regenerate in certain areas. that core group is still out there. >> second row here. >> i was wondering how you think the drawdown in afghanistan will shift from a counter resume -- a counter- terrorism posture?

how will it affect our long term strategic partnership with pakistan? >> we have a long-term bull in -- we have a long term goal in that area, which is to make sure we are able to maintain very deep, strong, and brought counter-terrorism ties with pakistan and afghanistan. when we talk about it, we talk about the afghan-pak fear. the that architecture involves sources of that we have, both technical and human. it involves partnership with the pakistanis and the afghans. it is having the ability to make sure that there will be dialogue and cooperation between pakistan and a afghanistan. that border area leverage for

the purposes into the borders of pakistan and afghanistan. drawing down 10,000 troops this year and drawing down the full surge by next summer, that will not affect our ability to continue our counter-terrorism efforts. what the president looks to me and others to do is to ensure that, as we look out over the next several years, hopefully before 2014, that we can ensure that we keep in place the capabilities, the architecture, the resources, the platforms that will allow us to ensure that that area it will never again be used as a launching pad for attacks against the homeland. there is no alternative to us or to the pakistanis to ensure that we continue engagement. it is frustrating. but at the same time, no other country have we taken as many

terrorists of the battlefield then in pakistan. no other country has lost more security and intelligence officers then pakistan. yes, we have frustrations with them, but, at the same time, they are on the front lines. they give their lives everyday. i am very appreciative of the efforts that they have made. >> our media colleagues have been very patient. let me go to the third broker >> -- the third row. >> i appreciate your last statement. if you read pakistani media, you get a very different picture. it says that there was not a single suicide attack before we got involved with the part of the world cared after that, -- the reason [unintelligible]

-- after that, pakistan has lost more than 30,000 people. people are so angry and we think that somehow pakistani lives are not important. but -- >> do you have a question? >> how can you really address these issues without addressing the common pakistanis concerns? but my concern is that there is a real cancer within pakistan among terrorist organizations. there is a general recognition in the united states as well as throughout the world that pakistan has a real challenge ahead of it to uproot and eradicate the forces of militancy within pakistan. i think the pakistani people

have to be very honest with the challenges that they faced domestically. if is an area that has served as a training ground, as a launching pad to carry out attacks. but not just against other but against pakistanis. men, women and children on a daily basis are being horribly murdered by these attacks, by these suicide attacks. these are homicide attacks. they killed and scores. -- they kill by the scores. a really do hope that the pakistani government and all these institutions will become even more aggressive in taking the battle to these forces of militancy and terrorism. >> i am looking at the big picture in the decade since 9/11. what do you see the top factors in denying al qaeda success in attacking the homeland over the past 10 years?

>> one is that i think we have made the united states a much less hospitable environment for al qaeda. it is much more difficult for them to move operatives here appeared the fbi, homeland security, the local law enforcement have done a great job at the ticket activities within our 50 states. they really have done a tremendous job. secondly, taking the war terrell qaeda, not just sitting back -- taking the war to al qaeda, not just sitting back here and trying to protect ourselves -- taking the war to al qaeda, not just sitting back here and try to protect ourselves. trying to dismantle and destroy the organization. it is clear from the material recovered from the compound of osama bin laden that he was aware that they were in trouble. he was frustrated that the commanders were not carrying out attacks. commanders were saying, we would love to do it, but we cannot. your aspirations outpaced our

capabilities. the fact that we have degraded the threat, we have addressed the bomber bill is. -- we have addressed the vulnerability iies. we have improved the capabilities of the foreign governments. it is a combination of things that have contributed to making this country safer. looking out the next 10 years, we will continue to strengthen our capabilities and to brave the threats and improve our defenses and reduce our vulnerability. >> we have time for one more question. james man. >> u.s. heard an excellent -- you answered an excellent questio question before about 's

interest in the arab spring. that begs the follow-up question about saudi arabia. its reactions to the air spring and whether this agreements have come up north things like mubarak and if it has affected the field of counter-terrorism. >> i have spent about six years in saudi arabia. i was there in the late 1990's. in many respects, it was frustrating for me, not just because the saudis were unwilling to be more aggressive. but it was because our government was unwilling to be more forthcoming with the saudis. the saudis went through time in 2003 when there was basically a campaign by al qaeda to carry out attacks against the saudis from within.

it became very personalized for the saudis. a lot of their intelligence security officers were brutally killed by al qaeda. they took it very much to heart. since then, saudi arabia has developed capabilities and it is one of the best counter- terrorism partners that the united states has. they recognized that there was a cancer within their house and they recognized and when i talk to them, they said they were too late in coming to this game. when i think about the question on pakistan, i am hoping that the pakistani people and services will realize that this really is a war. the saudis had to fight that war for several years. right now, i think it really is a testament to how far we have come since 9/11. when it concealed the ied's and the printers on the cargo craft, they would have taken down those airplanes if we did not have the information from the saudis.

i was giving a speech here in washington and i got a call from the assistant deputy minister of interior in saudi arabia. he needed to speak to me urgently. a call them back. sure enough, he give me the information that had been passed through other channels as well that provided the details about where those ied's were, what package, and we were able to locate them before they were timed to go off. that save lives, without a doubt. if the saudis did not provide us that information, we would have aircraft coming down out of the air, possibly over the united states. the investment we have made with our counter-terrorism partners, saudi arabia is a good example. collected think that, over the -- looking out over the next 10

years, we will have other stories but what has happened with saudi arabia, that things will really turn around, that the situation of terrorism in these countries and within pakistan that we will sort of get ahead of the curve. but it will still be a long and sometimes difficult battle. again, i want to say thank you to everybody here for being so polite and patient. the questions were rather -- i don't to save saw walls, but -- -- i do not want to say softballs, but -- [laughter] i was ready for something to come out that would be more challenging. i appreciate the opportunity to speak with you today and the strategy that this president has put out. i will say again that people like john mclaughlin and the students that you have taught, the people that are working within the intelligence community really have done just a spectacular job and a lot of credit goes to you, john, and

others who have helped the next generation of intelligence professionals and national security experts to contribute to this nation's security current so thank you very much. >> please think john brennan. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> today, senator rand paul, one of the founders of the senate tea party. that is at 6:00 p.m. eastern here on c-span. >> representative thaddeus

cotter has announced his presidential campaign for president. >> we decided several days before mcenry arrived that he would kill him. he had gone out and bought a pistol. he followed mckinley's whereabouts. he knew where he was going to be. he tracked him throughout the fair. >> self proclaimed anarchist leon show large shot at william mckinley. tonight, scott miller looks at the president and his assassin and the era in which they lived. >> on capitol hill, the senate was scheduled to take a weeklong break. but there will return on tuesday.

the government will reach its debt ceiling limit on august 2. lawmakers need at least a week to draft a bill to raise the limit and get it through the house and senate. they set a deadline of july 22 to reach an agreement. senators will work on a measure on libya next week. how the house will return to legislate business on wednesday. working this week, 2012 defense spending bill. next, a conversation with pakistani ambassador to the u.s. on u.s.-pakistan relations. during his remarks, he talked about the importance of having a long-term strategic relationship between the u.s. and pakistan and the raid on osama bin laden. this is an hour and 20 minutes.

>> good evening, everyone and welcome. i am patricia feliz, president of the women's foreign policy group. we deal with issues of the days, such as a topic for tonight, u.s.-pakistan relations. on behalf of the wfwfpg, and others, i want to welcome everybody here. we're so glad that you could join us for this behind-the- headlines and hot issues in the news. we have done events on egypt,

libya, women in the middle east. our event tonight is with ambassador hussain hav , the ambassador to the u.s. the event could not be more timely as we all know, given the increased tensions in the relationship between these two countries following the killing of osama bin laden. we're so pleased to have the ambassador with us tonight to explore the complexities and the importance of this relationship. i want to recognize a few guests who are here with us tonight. undersecretary of state, and

judith mikheil. [applause] principal deputy assistant secretary for economic energy and business affairs, devore mccarthy. [applause] -- deborah mccarthy. [applause] of course, how many ambassadors and diplomatic colleagues who we worked very closely with throughout the years on our embassy events. our next one will be in july at the embassy of the zambia. it will be on african women leaders promoting investment, trade, and peace. we are hoping that many of you will be able to join us for this very specially event. it now gives me great pleasure to welcome the speaker and moderator. you have their bios in your program appeared i will give you

the highlights and a few of their accomplishments. ambassador haqqani has represented the united states since 2008. he appears regularly in television and frequently publishes op-ed pieces. he has been an adviser to prime minister benazir bhutto. he is a professor and scholar. our moderator karen and the young is a -- karen deyoung has served in many positions that "the post," in washington and has covered afghanistan and pakistan extensively. after the embassadors opening remarks, he and karen will have

a conversation before opening it up to q&a with the audience. so please join me in welcoming ambassador haqqani and karen and the young -- and karen the eyoung.en d >> thank you very much for that kind introduction. when i was asked to come here, i thought that nobody was paying to pakistan these days. [laughter] nothing had been said about pakistan and the media. one that uses to communicate and find an excuse to be on c-span? -- why not use this to committee and find an excuse to be on c- span? [laughter] judith mikheil and i have worked together since her appointment

as secretary. it is a pleasure seeing you here. thank you for the help and cooperation that you offered here. and to the distillers london, many with some of -- and to the distinguished audience, many of which i know very well. the embassy of pakistan is very lucky to have a woman as the second-in-command. we have had two women ambassadors, which is a better score than those countries. i am proud to have a very competent woman as my right hand at the embassy. let me just begin by saying that the united states and pakistan have been allies for a long time. pakistan and the united states actually signed a mutual defense agreement in 1959. we started and a relationship

going back to 1949 considering that pakistan declared its independence in 1947. that is really since its inception. we have had a treaty relationships as 1954 when pakistan and joined -- when pakistan joined the southeast tree for containment of communism. so the pakistan and the u.s. have been allies for a long time. but sometimes i feel like this is a couple that has been married for a long time and still does not know each other. [laughter] and that is why we have periodic difficulties and differences. pakistan is a country that places a high value on

relationships. the pakistanis feel that we are developing a great relationship and then when it is done, the united states leaves because it has the things to do. this is very disturbing. this has to be a long-term strategic partnership. it cannot just be transactional. there will always be transactions. i am a father. i know that you even have transactions with your kids. there's nothing wrong with transactions. but it cannot be exclusively transactions. to understand the context of why pakistani newspapers describe pakistan as paranoid and

eccentric -- no, we will live long after the u.s. security concern do jour has passed. those are pieces of history. you know that this is my little cliche and i will repeat it anyway. sometimes, cliches are good. americans do a lot of things very well. america is a great nation that has contributed immensely to human progress. the idea of liberty, of freedom, of democracy, modern cousin,

globalism, and more inventions than any other nation in the last 200 years. all that is great. but there are two things that americans do not do well. when is history. the american attitude to history is -- joe, he is history. [laughter] or, as henry ford said once, all history is bulnk. that is the attitude. when i was teaching in this country, the problem for the history department was finding enough students who wanted to major in history. the second part the americans do not do well as patients. in our part of the world, history is most important. because of that, we find ourselves in a position where we

have never been fully able to trust the counterpart of the u.s. government and vice versa. no have a situation in which we have a war that we need to fight and win for our peoples say, which is the war against terrorists. terrorists have killed more pakistanis and the last three years than they have killed in any other single mission. 30,000 people have died in pakistan because of terrorist actions. that includes benazir bhutto, our beloved leader. and we're the only country that has actually lost military officers of the rank of general in this effort. that said, we do have a complicated reality in our region. therefore, are complicated reality sometimes does not always intersect positively with american policy in that region

and causes problems. the americans wanted done yesterday. pakistanis say it lets do it quietly and patiently. and the headline is that pakistan-u.s. relationship under brig down again. let me just say that this relationship is under stress, but it is not on the brink. both sides also realize the value of each other to each other. pakistanis realize how important the u.s. is to pakistan and the u.s. recognizes how to pakistan is to the u.s. if there is to be a stable afghanistan, that requires pakistan's critical participation in any reconciliation process. at the same time, as the defeat of al qaeda at all terrorist groups affiliated with al qaeda also requires pakistan to defeat them at home for our own sake. we do not need to do just for

you, but for ourselves. it is not easy. it is not easy simply because they have support networks, as has been said by many american officials. there is no evidence of anybody in the pakistani demint having to and do with the sullivan -- pakistani government having to do anything with the osama bin laden residents in pakistan. bill lot of them share -- a lot of them shared use and realities and belief systems that make them sympathetic to radical groups. that is where the effort of trying to change the whole this course of pakistan, changing the whole mill you, the environment, the economy, the education has been very important. that cannot be done in a traditional manner. you cannot say we will give you $2 billion and change everybody's mind and everybody will think that the restoration

of an islamic elements is the best course for the world today. when% of the population is sympathetic. -- 1% of the population is sympathetic. we're talking about 1.8 million people. that is a lot of people. that is not a small number. they can create networks and work and provide a private safe haven, a private sanctuary, very cleverly designed and protected for somebody like osama bin laden. absolutely, they can. what is important is to get over the moment the goo. i actually tried to find -- i play this game with karen also -- i e-mail to journalists stories that have appeared about the u.s. pakistan relationship

or something from like seven years ago and i say, oh, by the way, today's headlines seven years ago, it is just a movie. [laughter] it is that kind of quality. it is something that keeps repeating. we have to go passed this simplification that pakistanis cannot be trusted by the united states and that the united states is fickle with its relationship with pakistan. it is a difficult balance to manage. it is an easy job. that is why i have it. [laughter] we are working on it. it will not be easy. it will not happen overnight. patience is required. the two countries need each other and we will continue to work at it. past the headline du jour, past the crisis du jour, and passed

the strategic momentary thinking du jour. pakistan is the only muslim- majority nation with nuclear weapons. it has neighbors such as india and iran and china and afghanistan. s importance cannot be diminished. the good news is that we are working on our democracy. we have sustained it for three years. hopefully, we will be able to sustain it for a long-term future. we are in the process of normalizing relations with the

two neighbors we have had trouble having relations with, afghanistan and india. the tough thing is that we are also thinking of looking at things differently, at instead of sitting at the crossroad of these complex, and we want to see ourselves with the opportunities that this presents. transition is not easy. it will be difficult. it will take time. but we have the clarity of our vision and the intent is there to do it. i will leave all the tough questions for karen to ask and for me to answer during the dialogue. thank you for being here. [applause] >> you can all see that ambassador haqqani is a very good speaker. [laughter] he is paired with john stuart on

"the daily show," on oakwood charlie rose," " and he is very adept at avoiding questions. [laughter] >> i was looking for a compliment. [laughter] >> that was a compliment. [laughter] >> at the beginning of your remarks, you talked about diplomacy and how difficult it was for both countries. at the pakistan national defense university, you asked who pakistan's enemy was and how many thought al qaeda was the enemy and not too many raise their hands. you ask them if in the was the enemy and they not many -- and not many raise their hands. and then when you asked if it

was the u.s., many people raise their hands. some people find that inexplicable. they cannot understand. they say, my gosh, we have given pakistan $20 billion over the past eight years or nine years and, granted, that is kind of a pittance compared to what has gone into afghanistan and other places, but it is certainly more than in the past. why is it the the pakistanis do not like this country? >> first of all, let's correct what happened at the discussion. they put a video on the web site in islam bought and you can see -- into a slum of blog -- in islamabad. those who thought that al qaeda was the major threat and those

who thought that the u.s. were a major threat were more or less equal in number. there were less people concerned about india. that is the correct factual position. it was short after the incident where osama bin laden was taken out and the feeling in pakistan was that the u.s. had violated pakistan's sovereignty in doing that. that the u.s. could have done the same with pakistan's cooperation. that was the divide within pakistan that was reflected in that. a simplistic analysis of it is -- it is more nuanced. even those people who did not mind osama bin laden being taken out, they thought that the u.s. should not have done it laterally. i have a problem in my backyard, but you can ring my doorbell and asked to help you clean it up or you can jump my wall and do-it-

yourself. there will be two different .eactions to those t pakistan is not very well liked by the united states either right now. that always has to do with how perceptions are being presented. if the news daily errors that pakistan is a source of trouble for american forces in afghanistan, that without the detail of what the conflict is, the u.s. asked pakistan to do x, y, z and pakistan refused, etc., the guy in mobile, alabama is not as much an expert on foreign policy. although there are those who would argue that -- but the poor guy in mobile, alabama is just listening to the news. he is getting a 60-second

summit on radio as he is driving home from his job -- 60-second sound bite on the radio as he is driving home from his job. in pakistan, the reverse is happening. the news's on and the u.s. made a huge mistake several years ago when you shut down the united states information agency which was a huge public diplomacy operation which basically was about explaining america to people. now your attitude is, we give you money and you should like us. with due respect, how many of you have fallen for that one in your private lives? espouses collect money and they still do not like the former husband. [laughter] it is not the way the world works. i do not understand what people cannot understand that this is a country where the general feeling is that the americans came and asked us to help them create a massive military operation against the soviet union when the soviet union

occupied afghanistan. it was called the major operation to stop soviet march towards the south, to iran, to pakistan, and to islamabad. we helped. the golden rule is you are people and you disarm them at the end of the battle. it always happens. you take the guns back from the concourse. you give them something else to do. instead of doing that, anyone who has seen "charlie wilson's war," you have seen a caricature version of it. i was there when it happened. i was there as a relatively young man, begging american congressmen and senators not to shut down the american training and education office. there were military officers who had exposure to the united states. they could not be bothered because the main concern of the

soviet presence in afghanistan was over and the u.s. walk away. pakistan had to deal with the fallout. it was not managed very well. there were leaders in pakistan and some military successors and many political leaders who did not understand the complexity of it all. basically, they just thought that all we need to do is divert these guys from afghanistan to other friends and tried to use them instruments of -- but the reality was the fact that instead of having an economy of forces, there was nothing for them. so we had a problem since then. that is one of the reasons that people think that the u.s. is fickle. it walks away and does not care what the outcome is for us. there is an overall negativity toward the united states all of the muslim world. we have been having trouble

telling your story through the muslim world. sometimes, they are more sympathetic to israel because they have an arabic speaking spokesperson couldn't since then, they can tell their own story. then you have these people -- we feed our media all the seventh and then we have something like 38 24/7 news channels in pakistan. this was to the united states would be like with 38 fox news channels or msnbc. [laughter] but you did not invest in it and those channels are not on your side. you have to tell your story.

he walked away from pakistan. by and large, that is the sole fallout of the perception management. clinton went there and had town hall meetings. i would not overplay this point from 11% approval rating, it went to 21%. a few town hall meetings trying to explain your position to people gives you a joke. it was an election year in the united states and this was happening in iowa, you do not make headlines out of it. enough to keep it sustained. this is another problem. most american diplomats go there for one year postings. three months for unpacking, six months of service, three months of packing again. that is no way to actually have interaction with the population. so your case is going unheard pi.

sometimes i make a better case for u.s.-pakistan relations on pakistani television than your government and i do not speak half as well as you do. [laughter] i did not answer the question thoroughly. [laughter] >> the belief here is that if is incumbent upon pakistani leaders to defend this relationship and they do not see that happening. it is not just the to the united states to say, hey, like us, but that pakistani leaders, particularly in the military, sometimes over the act against a better relationship and many of the stories that are in the pakistani media, which you so rightly recognize, are quite anti-american -- your own

military sees it to its advantage and to its own benefit to portray this relationship as not good. >> leaks in the media is an instrument that is used often by people who are losing the policy argument. let's be honest. that is one way to sabotage the momentum. if you had that situation, then those individuals in the government apparatus, whether civilians or not civilian, who feel that the elected leadership is moving the country in italy different direction from there -- from where they ought ideologically wanted. while i concede the point that maybe there is too much misinformation in circulation in pakistan about the pakistan-u.s. relations and you know the details of what the stories are, it is sometimes --

conspiracy theories are a very common thing in our part of the world. it is unfortunate. first of all, we have a very young population. half of our population is under the age of 18. 40% of those under 18 cannot go to school. so it is very easy for somebody to come on television and tell an unusual story that sounds very plausible to them. for example, we had a recent television show in which this guy was talking about some alleged and sell a day -- alleged satellite-based system. allegedly, the u.s. has the ability to have satellites to manipulate and create landslides and earthquakes and floods.

it is ridiculous. but they get away with it. so i agree with you. there are those elements who may be leaking stuff to the media for policy reasons. but if the u.s. and pakistan were together on this, if the government are clearly understanding of the thing and say, we have to work together and stick it out, we will be able to work on that. it is not like pakistan is the first country that has been affected by conspiracy theories. in southeast asia, i was there as a young journalist way back in the early 1980's and it was not very different. there were a lot of conspiracy theories in circulation to and the americans got -- institution. there were a lot of conspiracy theories. the americans went to work there

and got the government on board. after 9/11, the americans did a shotgun wedding relationship with musharraf. there was no attempt to create public support for changing the environment for a greater american presence. and then things like to be re like ray davis who tried to play a real life jason bourne erupted. it was they've sought, an ugly american who shot two pakistanis without any

provocation or reason and getting away with it. those are the things that also have to be taken into account. it is not always their fault. there's enough blame to go around. >> i will give you a compliment now. i think the best ambassadors in washington recognize the amount of attention that they actually have to devote to congress. you have to know a lot of people. you have to spend a lot of time with them. sometimes even more time than you spend with people in the administration. i think that is one of the things that you have done and one of the things that you spend more time on. what is your sense of what the feeling is in congress now? are you worried that there will be a real push to cut off -- to some " -- to circumscribe this relationship? obviously, the obama administration has gone out of its way to say that this is a complicated relationship and we

need each other. we will try really hard. this will work. and listing all of pakistan's accomplishments in counter- terrorism. how concerned are you and what effect would it actually have if congress stand up and starts complaining more aptly to the point of imposing more restrictions on aid and threatening to cut it off? >> first of all, we do not want this relationship to be just about a period when people start talking about threatening to cut off aid, you know what, what's that stuff on the staid business. -- on this aid and business did it is not like we're hired help and the aid is for motivation . we need to strengthen our capabilities to deny terrorist recruiters more recruits for the future. so let's not just make it about

eight as reward. aid when there is -- about 8 as reward. i am concerned. i fully a understand that congress has to explain to an american audience that is not always fully understanding. in an institution like this, $1 billion, two billion dollars from zero without realizing, by the way, that maybe the war in afghanistan is consuming $12 billion per month, which is six times the annual assistance being spoken of in relation to pakistan -- that does not always register. it is not rational. it is just emotional. if some of the late in wasn't pakistan, then -- was in pakistan, then let's cut off assistance to pakistan.

for every hamlet, there is a nail. the truth is -- for every hammer, there is a nail. the truth is, it has not always work. we would like it just to have that relationship. but cutting off aid to influence policy has not usually worked. that said, congress will listen to your military leaders, listen to the administration. after all, as a student of the united states history and as someone who had myers america's founding principles -- who admirers of america's founding principles, i do believe that there was a reason that the founding fathers and the author of the american constitution led foreign policy to be the richer -- the jurisdiction-- the actuae

done by the legislative branch. elected officials and members of congress, who make a lot effort now in this day and age to try and understand other countries -- their primary effort is to understand -- i understand their own constituents. many of the constituents in the congress have been supportive. i respect them for asking the questions. my wife is a member of parliament in pakistan. she asks tough questions, let that is what -- because that is what her voters voted her into office before. i want you to continue to ask tough questions. both of your administration and, on behalf of pakistan, i am here to ask tough questions. i do not think this will be worked out by making this --

taking those tough questions bit farther and making them into threats. that is not what we should be doing. i think the american administration's position is that we should bring pakistan and the united states into an equilibrium in which america's goals and pakistan's positive goals will also be accomplished, only by working together. >> i want to switch to afghanistan. you have had the latest meeting of the core group of afghanistan-pakistan-united states to talk about reconciliation issues in afghanistan. can you talk a little bit about what pakistan's assessment is of that process now? not wrong in the corporate process, but also reconciliation in general -- not only the core group process, but also reconciliation in general? also, what pakistan can bring to the table? pakistan has talked frequently about needing to have a seat at

the table. what do you bring to the table? americans have said that you need to either sever your relationship, for example, with the economy network -- at cannae -- haqqani network or -- >> which support reconciliation in pakistan because we understand wars usually and through some kind reconciliation and talks anyway -- end through some kind of reconciliation and talks anyway. to bring to when and the internal conflict in afghanistan and started after -- to an end the internal conflict in afghanistan that started after the departure of the soviets -- kabul had a tenuous hold up through 1990. then there was the famous civil

war which brought the taliban and our. we do not want to intervene in the internal afghan -- brought the taliban and into power. -- but the taliban into power. we did not intervene in the internal afghan affairs. united states, afghanistan, and pakistan, form the core group in which we can slowly to engage others. why is afghanistan being so difficult. one minute for me to play professional haqqani instead of ambassador haqqani. they adopted different factions of armed groups in afghanistan that had been created by -- to fight. the americans created a vacuum. some groups were adopted by the

iran, the russians, the central asian states, some by our neighbor, india. you have groups with different regional actors and regional powers. any reconciliation in afghanistan has to be based on the concept that none of the regional powers will play a role in afghanistan in terms of trying to dictate the outcome of the reconciliation. what can pakistan do? pakistan is willing to facilitate in every way. we still have 2.5 million afghan refugees in pakistan. we have the ethnic overlap that -- overlap. there are's tunes in afghanistan and in pakistan -- afghanistan and in

pakistan. our pashtun elements and our intelligence community links can be used to resulted the reconciliation -- used to facilitate the reconciliation and peace process. the u.s. estimate up its mind as to what it wants to see as the end game in and pakistan -- in afghanistan. are there as facilitators. the most unborn thing is that all three, afghans -- the most important thing is that all three, afghans, pakistanis, americans -- and nobody should try to do something that create new misgivings on the part of the others. if we are partners, we have to be full partners. i think a lot more is happening

here karen -- hear, karen. there is a lot happening here, karen. the quiet diplomacy that set a new stage -- that sets the stage for these events will be seen by the world as the beginning of the reconciliation process. i think those events are taking place quietly right now. i will not say they are going to succeed tomorrow or the day after. in all such things, once the breakthrough comes, the reconciliation will move much faster. right now, we are in the preliminary stage. hopefully, we will move much faster. we need to start trusting each other a little more. >> i will open the floor to questions. we will have a microphone to bring around. do we want people to go to the back?

i will call on you. if you could say who you are and we will let pat asked the first question. and -- ask the first question. >> been [inaudible] you said we have to get over the moment. i am wondering if you could give us -- two questions, any concrete steps that could be taken to improve the relationship. you talked about the value of more visits by senior officials, more consultations. what are some other things that could be done. another issue in washington relates to one of your neighbors, china. there seems to be some concern in conversations that pakistan is getting closer to its friend

china, particularly in the nuclear arena. i wondered if you could address that concern. >> i will answer the second question first and then come to the first one. china and pakistan have been closed since 1929 when the communists took over beijing -- close since 1929 when the communists took over beijing. we did not feel we could not afford -- we could afford to not become close. we recognized china. we became the first non- communist country to start their own side to the people's republic. eventually, our diplomacy, which i am a facility there to your diplomas the with china -- people tend to forget history. henry kissinger went for his first trip to china through

pakistan. pakistan facilitated the entire connection between china and the united states, somewhere, i think in 1969, when the first kissinger trip took place, to 1974, when the united states recognized the shanghai communique. it is one of those things where something becomes the story. one candidate declares. everybody talks about that candidate until something happens. and that story fizzles out. china and pakistan have been friends for a very long time. they have the historical outlook and the understand the value of consistency. whether our trade is of order down, whether the military -- is, or down -- is up or down,

whether the military is -- they have a slightly -- significantly higher popularity rating in pakistan. are seen as a -- they rc as always our friends, as opposed froare seen as always our iends, as opposed to the united states who are seen as our fickle friends. we do not think china is interested in a cold war with the united states. no one in the united states government has given as an indication that they look upon china as a major rival. this is not the cold war. china and pakistan will continue to remain friends while we build our relationship with the united states. hopefully, our closeness to china will be of use to the

united states. on the subject of concrete steps to improve the situation between are two countries, i think it will need to understand that events bang like osama bin laden -- events like osama bin laden been in pakistan -- there are always two sides. americans are upset that he was in pakistan. i think we can understand each other's perspective and move forward. on intelligence, military relations -- both sides need to talk to each other. there are many things on which, when i meet government officials, we work things out. when i read the morning paper, it seems they have not been worked out. in this environment of

agitation, when the media is saying onw rhinf -- one thing and politicians on both sides are saying what is going on -- it all makes things difficult. for some time, i thought we should continue building relationship, putting pieces together, doing it actual business of diplomacy and to keep the decibels low. the decibels have really increased. pakistanis said that immunity -- we are not sure. he did kill two people. if somebody -- is somebody going to apologize for that? is he going to be subjected to some kind of process? what is going to happen? then we have the power of the

box solution -- the out of the box solution. it would still be good at the american side holds up its bargain of investigating. if i were to commit a crime, god forbid, in this country, i would be impugned, but, at the same time, my government would be expecting and ended -- expecting an investigation, even though i am not allowed to be arrested or put into each criminal -- put into criminal, judicial proceedings in this country. from that point on, it has been this relationship by shouting at each other. it is not working for either one of us. let's lower the decibels and let the professionals -- secretary clinton is a great leader.

she has done a wonderful job working out difficult situations. among your political leaders, people like senator carey, who is the chairman of the senate foreign relations committee -- senator john kerry, who is the chairman of the senate foreign relations committee, he has always been good. they are very professional. they worked out a way to do things. that is what their job is. out of the limelight. the department of defense, they understand. if there is one thing the u.s. military understands, is the value of having a relationship with other militaries in the world -- it is the value of having a relationship with other militaries in the world. i think we can put some of those things down. i am quite certain we will.

>> question over there. >> my name is kimberly. i was simply a curious citizen. i wonder whether you think afghanistan is the equivalent of yugoslavia and has no coherence. >> actually, afghanistan has been more or less at stake in this present form for almost 700 years, which makes it not comparable to yugoslavia at all. there was enough construct and stuff going back quite a while in history. the problem, of course, is that we tend to sort of thing -- nations have different skills, different stages of modernization and evolution of their political institutions.

when i was teaching in this country in my years in exile, when of the things i used to do was, i used to say to my american students, don't think the world is divided between americans and one of the americans. there are people who just want to live their lives the way they want to live their lives. the second thing i used to tell everyone, but you have to understand is america is a nation of problem solvers. it is always looking for solutions. let's look for a new model, find a better way. too many side effects, the fda pulls the drug from the market. etc. that is not the function of diplomacy in international relations. the word -- world is not a problem for america to solve.

the world is the reality for america to understand. some people -- some things, you can change and influence. historically, americans have interacted with the nations they have relations with. without setting myself into a domestic american argument -- and i have to be cautious in saying that, look at the difference between your influence on eastern europe and north korea, iran, and cuba, countries that you do not do -- do not maintain diplomatic relations with. they have even changed their own conduct closer to yours. over time, iran will also have that in direction, instead of going with the agenda and sent it is either/or -- st. saying --

img bid -- saying it is either/or. >> yes. >> [inaudible] ambassador haqqani, the new from philosophical back to the day -- bringing you from philosophical back to the de -- >> i was doing so well. >> he said that he wished the pakistanis would be more honest with themselves about the fact that a lot of the terrorism in the world emanates from their territory. that was said in the context of describing a strategy where she said there will be operations

such as the raid on the osama bin laden compound --and that te u.s. would take other similar actions, i.e. drones, without saying the word. how will that play on the streets of pakistan was you talk about playing the rhetoric down? what do you think the rhetoric -- strategy should be? but any comment on strategy will involve communication -- >> any comment on strategy will end of communication with my embassy -- will involve communication with my embassy. we understand that there is an internal dialogue that has to take place. it is taking place. if you read the pakistani press, every day, both opinions are

there. there those who plan a call on americans. those of -- there are those who blame it all on americans. y we have those who sai terrorist violence against certain minorities. it has nothing to do with international political issues. we need to wake up to that reality. the people who kill our minorities a religious minorities, -- our minorities, our religious minorities, those people are terrorists. they are linked to other terrorists across the border. there are the same people who attack our me and our intelligence services -- they are the same people who attacked our army, our intelligence

services, our officials. we are confident that the united states and pakistan could work together, should work together. there is no need for unilateral action. in all honesty, what do you think would have happened if the president of the united states had called the president zardari bid for the about a bad grade -- add called president zardari before the abbottabad raid? if there was concern about the information being leaked, the american side could have said, we are not going to tell you where. we will a ride together. then we can -- we will ride together. we can do it together. it could have happened. there have been operations like that.

all of the other significant people -- so many. in fact, i would like to know how many of the current inhabitants of guantanamo pour arrested in countries other than afghanistan or pakistan -- four were arrested in countries other than afghanistan or pakistan. this is not the way to do business between two allies and partners. we would not interpret those remarks as the latter. we understand them to be a reduction of an american -- to be a reflection of an american statement on policy. americans have the right to defend in their homeland by ensuring that they're is no plotting -- there is no one plotting against their homeland.

we would like to protect our sovereignty. sovereignty requires that operations should take place with our knowledge and our participation. >> does that mean that you're forces would fire on any raiders -- your forces would fire on any raiders? >> i saw a friend of mine. i said, i was an ambassador before in sri lanka. what should i bear in mind while serving as ambassador? he said to remember just one thing. never answer a question that begins with if. [laughter]

>> i do not have a question to you, but through you, act as a barometer for what you are hearing from citizens back in pakistan. we have a presidential election coming up next year. i cannot believe nobody in your country is paying any attention -- no attention to that. we have some moneys overseas. people want to bring a tear to help our country through the recession. i am curious as to what -- brain it here to help our country through the recession. i am curious as to what you are hearing about next year's presidential elections. >> i am not sure i am hearing quite a lot. ambassadors are never supposed to comment on the domestic politics of the host country. not all american ambassadors followed that principle in other countries, but all pakistani

ambassador to. -- do. let's be realistic. this is not the first time it has happened. i am a student of american political history. isolationism has been a significant intellectual strand, sometimes not even intellectual, just political. blink, we are safe here -- people think, we are safe here. we have to be careful in embracing that. the american government spends far more on military preparedness than it does on diplomacy. diplomacy is the means to avoid war. there is something wrong when you spend more on preparing for war and very little on actually

avoiding war. there is a real disconnect in this country where people who say we're advocates of a strong defense, but not advocates of a strong diplomacy -- without getting into the american domestic, political arguments. if you have friends, either republican or democratic, and they include people with this kind of view that, you know, we are spending too much overseas. you would spend less overseas if you're dealing less with people who hated and opposed you. you could be the world's leaders without having to spend that much money because people look toward you for your ideas. i often tell my own personal

story. that was a young boy in pakistan. a growing up in the city of karachi -- i was a young boy in pakistan. i grew up in the city of karachi. i was a relatively good student. i got a scholarship. they used to go to the american library because it was air- conditioned and it had a lot of books. i read a lot of stuff. i have still not met an american 17-year-old who has read the federalist papers. many years later, when i became a journalist, i was at the american embassy for banks giving dinner -- thanksgiving dinner. i was invited to participate in

trivial pursuit. guess who won? of my knowledge is essentially book knowledge. of course, he decided to rectify that by giving me an invitation to come here under the u.s. state department's international visitor program, which i think was the best use of american tax payer money ever. you ended up having somebody know your history, appreciate your nation's ideas without being going and in your country -- born in your country. somebody who is from another country, loves his own country, but looks at your country with admiration. you could have millions more like that at much less cost. i assure you that might international intercessory program had all of the spending -- and all the spending was much less than the price of the drones were having to use. are two ways of looking at it.

one is, spend more on defending ourselves or spend a little bit of avoiding antagonizing people and making them into enemies. [applause] >> pakistan also spends a great deal of its gdp on its military. i am wondering, as a pakistani- american, relatively young, been in contact with the use the pakistan, i get the feeling that they feel the leadership has failed them in failing to strengthen the civilian infrastructure. i was wondering if you could address that. >> pakistan has -- before more

than half of its existence as an independent country. we have never really had an open debate on what our national priorities ought to be. national security is always important. protecting sovereignty is also important. by jules leger country is safe from external enemies is also important. it is also important to have an educated population, and -- a strong infrastructure, investment in health care, and the available -- for being part of the modern country. we are not there yet. we're still coming out of almost four decades of the sort of domination -- four and a half decades of domination.

we all love our military. care about them because these are people who fight for us. at the same time, we do not like them running our government. we do not like them running the coup d'etat. we have spent most of our life under the shadow of a politically-interventionist the military. we are coming out of it now. we have no intention of reading to that. it allows us to have a more open debate. how much do we really need to spend on defense? who are our enemies? what is our defense strategy. how can we optimize our defense without allocating all the resources on supporting the military? how do we avoid the fate of the soviet union, which tried to

match the united states weapons system for weapons system, and ended up having an internal collapse? those are things that our leaders are aware of. people forget, in 2008, we had the transition. we transition from being -- to participating in an elected government. being in prison or been in exile is not experience for running government. it is a young population. i am on to win it. -- on to it. facebook and twitter kids are going on and on about change tomorrow. change does not come tomorrow. you realize you have to go through what you have gone through to get where you are.

understanding the dynamics of pakistan's history and the internal change is important for pakistan makes these changes. it's only a matter of time before we find the equilibrium between investing in art, children, our population, infrastructure, health care, those things that will enable us to become a vibrant economy, while maintaining the robust and healthy defense. for that, we have to prevent the war against terrorists first. >> can i interject a question. -- question? there has been some rapprochement with india. pakistan has increased its nuclear weapons capability and research, perhaps more quickly than any other country in the world. why does the pakistani

government see that as necessary? >> pakistan's nuclear policy has been relatively simple. pakistan is part of global efforts for nonproliferation. we're willing to be part of any global effort to do away with nuclear weapons. however, what we're not prepared for is having a much larger neighbor than ourselves having nuclear weapons and us not having them. that has been our policy. our nuclear deterrent is primarily our regional-specific nuclear deterrent. even then, we have never come close to the possibility of -- we can find solutions and work forward. we tend to be like all nations, secretive about our nuclear weapons and our actual warhead to structure.

process ofin the dialogue and normalization with all of our neighbors and we feel more secure, i feel that will be less and less significant than it seems right now. them that and then we will get over there -- >> and then we will get over there. >> this is very interesting. i am a member of the rotary club, washington, d.c. last month, i was at our annual convention, which happens to be in america. we got all kinds of data about what is going on with the eradication of oil. he pointed out that there are countries like nigeria, india, pakistan, and the last year for

data was 20 cents. it has decreased -- decrease in in -- decreased in nigeria, india, pakistan. it had increased from 67 to 144 from 2009 to 2010 -- he did not give reasons, but it seems to indicate there are parts of the country that are not under the controls or the vaccinations are not happening. do you have any insight? >> those are absolute numbers. the size of population has to be borne in mind. of the country's human gene, the fastest population growth is in iesistan -- of the country' you mentioned, the fastest population growth is in

pakistan. we have a plan for polio eradication. we brought it down considerably. in the last four years or so, the numbers have spiked up to rapidly, primarily in one area. that has had to do with two things. one is the clerics taking the position that these vaccines are something -- some kind of instrument of the double, etc. devil, etc. the other factor is security. we do have a national polio eradication program. our president was here in washington, d.c., a few months ago. he was here for ambassador

brooks memorial service. we may not be able to get to 0 any time soon. there is nothing anybody can do if some kid comes across in circumstances that arise polio. we hope to bring the numbers back down to the relatively nominal numbers that we used to have in the mid-1990's and late- 1990's. >> we have just a few more minutes. i think we have three questions. elizabeth, you have a question? and then your question. go ahead. >> mr. ambassador, in your opening remarks, i believe you said that half of the population that pakistan has been -- is under 18. >> it is a very young population. >> there has been a fair amount

of coverage of these madrasahs in pakistan, where the koran is pretty much exclusively taught. there is a real concern that radicalism is being sponsored in the teaching. my question is, how widespread among the voice of pakistan are these madrasahs? who is supporting them? how concerned is the government about that? my second question, if i may, i believe you said that, given your predominantly -- you are a predominantly muslim country, there was some sympathy by the population with some of the aims of these extremist groups.

i cannot quote you exactly, but i wondered if you could elaborate on that? >> [inaudible] >> we will answer them altogether. don't worry. if i have to answer only one, i will answer only yours. emhart high. -- >> hi. i am from "the new york times." are you 100% convinced that they are trustworthy and they have no link -- that is an easy question. >> [inaudible] >> hi. i am from the women's foreign

policy group. do you think there is such a thing as too much aid? do you think it can harm the relationship between two countries? can you speak on that in regards to the pakistan-u.s. relationship? >> so that "the new york times does not -- "the new york times" does not get mad at me -- [laughter] as far as the cooperation between the isi and cia, it is an ongoing cooperation. there are days when they are both happy with one another. that is the nature of intelligence. i do not need to say something new. i think that secretary gates, as he was leaving office, very

wisely put it that there are certain things that happen in the real world, especially intelligence, which i think when we try to approach it with a very simple black-and-white sort of approach, they fall into the category of great and there we y andthem difficult -- graa therefore we find them difficult. the manner of being part of these efforts may not conform to the expectations of some of our international partners. what comes first, second, there will be disagreements. that is the nature of the beasts. -- beast. it is one of those things on which people have different opinions. it should always be to get people on their feet, to be able

to do things on their own. if you create independence, which pakistan does not seek, does not want, does not wish for itself, then you're not being helpful. at the same time, i would say, just as there can be too much aid, there can also be too much debate about eight. -- aid. [laughter] someone was talking about pornography and said, i do not know what the definition, but i know it when i see it. in this city, in particular, an entire profession and occupation has involved, which is debating aid, figuring out aid, thinking of new ways of providing aid, critiquing indeed, criticizing aid -- criticizing aid,

critiquing aid. and spend more time talking about it than letting it happen. anything that requires 97 studies about how to do it is definitely something that needs to either be revisited or be done in a different manner. you do not need 20 studies on how to build a school in afghanistan. you just need to build a school in afghanistan. the same goes for pakistan. too much aid -- i am guessing there is such a concept. frankly, the book are young -- frankly, you are young. do not join the ranks of the cynics. nobody wants to be recipients of aid forever. as long as the germans received aid after the second world war -- look at where germany is

today. japan, south korea. there are countries that received assistance, find their own economic momentum, and they take off. they are in a cycle of receiving aid and not getting on their feet. there needs to be aided that gets people on their two feet -- aid that gets people on their two feet. now to the final question related to -- >> madrasahs. >> the number of students could be several hundred thousand. in percentage terms, it is less than 2% of all of those at school. since i do not have the information, i will not identify them. there are programs of this nature going on.

the icrd, international center for religious diplomacy, they have a program. the pakistanis have programs as well. there will always be concerned with religious-conservative groups in every society -- concern with religious- conservative groups in every society. we do not mind people who want to have more conservative interpretations of religion in their religious schools. to find them? there it -- who finds them -- funds them? in a nation of 180 million, like pakistan, even if 1% of people have the sympathy with the

ideas, not necessarily about data, but the groups that actually think the objective is creating -- is opposing modernity -- reverting back to a more puritanical religiously- based order, those people will always be in a society like ours. for that matter, our region is not going to be just another county in kansas any time soon. >> i think we have run out of time. i want to thank you for coming and for your questions. i want to thank you our speaker, ambassador haqqani, for your candor and your time, for teaching us about how pakistan orcs, pakistani history, even some american -- pakistan works,

pakistani history, even some american history. thank you very much. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] in a today on "newsmakers," center rand paul -- >> today on "newsmakers," senator burr rand paul -- senator gregg rand paul -- senator rand paul. the government will reach its debt ceiling limit on august 2. lawmakers need at least a week to draft a bill to raise element

and it through the house and senate. is that the deadline of july 22 -- to raise -- draft a bill and to get it through the house and senate. the house returns to legislative business at 2:00 p.m. eastern on wednesday. >> on thursday, president obama awarded outgoing defense secretary robert gates the presidential medal of freedom, the nation's highest civilian award. he is the first to serve both our republican and democratic president. he was honored at a ceremony that included remarks by joint chiefs of staff admiral mike mullen. this is about one hour.

>> ladies and gentleman, the vice president of the united states, accompanied by mrs. gates and mr. bradley gates.

[applause]

ladies and gentlemen, please stand for the arrival of the official party, and remained standing as honors are rendered -- remain standing as honors are rendered. ♪ ladies and gentlemen, we're here

to review an official, the honorable robert gates, secretary of defense, the company by admiral mike mullen, chairman of the joint chiefs of staff, and the host for today's tribute, president of the united states barack obama. ♪ ["stars and stripes" forever forever"s playing] [guns firing]

please be seated.

♪ ladies and gentlemen, secretary gates was awarded the united states army decoration for exceptional civilian service, the united states navy's distinguished public service award, and the united states air force decoration for exceptional civilian service. his wife has been awarded the distinguished public service award by the chairman of the joint chiefs of staff.

[applause]

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>> ladies and gentlemen, please stand for the national anthem. ♪

anthem] ♪l >> please be seated.

>> ladies and gentlemen, admiral mullen. >> on behalf of each and every one of our men and women in uniform, let me thank you for being here to honor the leadership and service of bob gates. secretary gates has led our

military in this time of war with impeccable skill and integrity and a staunch commitment to truth-telling, a matter how tough or uncomfortable -- no matter how tough or uncomfortable that truth might be. the matter how high or low in the command that truth needed to travel. in that regard and in many others as well, he mirrored perfectly the pragmatism and grit of our troops downrange. i think that is why so many of them are drawn to him. he tells it straight, no fancy words. it is not that he does not have a fabulous vocabulary -- or even a colorful one at times. he can throw barbs with the best of them, like the time he called washington "the only place in the world where someone can walk down lover's lane holding their own hand."

it is not just his wit. it is that he is indelibly honest. as one admiring soldier put it, he could not play dead in a cowboy movie. it is this honesty which has served him so well throughout his tenure and more than quarterdeck aids a public service. no fewer than eight american presidents have benefited from his device. to that number, i could add hundreds of generals and admirals, thousands of college students at texas a&m, and millions of american troops and around the world. i am going to take a wild guess, but i bet he would say it is harder getting through to the generals and admirals and it was even to those aggies.

but he did get through in a big way. he made us think about things we have not considered. he made us try harder. he made us lead a little better. he prods and push and probes. he drilled down for details and never stopped asking uncomfortable questions. when he compared compelling change in the military to pulling teeth, he was not kidding. the truth is use of a change needed before many of us did. you lead the transition to a new mission in iraq and proved pivotal to the transition were now strive towards in afghanistan. use bird us to find new efficiencies -- you are the one who urged us to find new efficiencies to be better stores of taxpayer dollars.

-- better use taxpayer dollars. you urged as to purchase more vehicles so that more troops come home alive to their families. you demanded that when they did come home, they were given all of the respect and dignity and care and support they needed to get on with their lives. the troops knew that you fought for them and they had no better friend. i do not think a single one of them would say that which -- would not say that it is for the friends they fought the hardest. i am proud to count myself as one of your friends. i will miss your leadership and counsel. as your next-door neighbor, i will even miss coming home on saturday afternoon to the sight

of you sitting on your front porch. i will not miss you blowing all of your dead leaves on to my lawn. [laughter] mostly, we will miss you and becky and the quiet dignity with which you both served our military and country. to say that we are grateful is to vastly understate our emotions on this day. if there is more distinguished public service by two other citizens, i do not know it. i thank you, sir. it is now my great honor to introduce to you a man who likewise has devoted an extraordinary amount of time and

his personal leadership to the task of keeping america safe. he is a man who, along with his spouse, has made the well-being of our troops and their families the highest of priorities he pursues. ladies and gentlemen, the president, our commander in chief, barack obama. [applause] >> thank you very much. admiral mullen, thank you for your eloquent words and for your extraordinary service as you near a well-deserved retirement.

thank you for four decades of incredible service to your endeavor. members of congress, vice president biden, deputy secretary linn, members of the joint chiefs of staff, service secretaries, and distinguished guests, men and women of the finest military in the world, and most of all, secretary gates, becky, brad -- although she could not be here, i also want to acknowledge your daughter, eleanor. when i took office, bob gates had already served under seven presidents during an illustrious career that spanned four decades. he would have been forgiven if he had opted for a private life of comfort and ease. he had earned it. when asked by a reporter whether

he might stay on to serve an eighth president, he offered the answer, of " inconceivable." why did he stay? i know there are days when he asks that himself. i am sure becky asked that also. i believe i know the answer because i have seen this man in those moments of debate and decision, when a person's character is revealed. in the oval office, in the situation room, in the theaters of war. if you look past his flashiness, bravado, sharp attire, love for

the washington limelight, then what you see is a man i have come to know and respect, a humble american patriot, a man of common sense and decency. quite simply, he is one of our nation's finest public servants. bob, today you are not only one of the longest serving secretaries of defense in american history, but it is also clear that you have been one of the best. why did bob gates serve? our nation is at war. to know bob is to know his profound sense of duty to country, our security, and most of all to our men and women who get up every day to put on america's uniform and put their lives on

-- go line to keep us safe and free. when the outcome of the war in iraq was in doubt, bob gates presided over the extraordinary efforts that helped to restore order. over the past 2.5 years, we have removed more than 100,000 troops from iraq, stopped their combat mission, and are responsibly ending that war. when the fight against al qaeda and our efforts in afghanistan needed new focus, bob gates helped us to devise the strategy that has finally put al qaeda on the path to defeat and ensures that al qaeda -- afghanistan never again becomes a source of attacks against our nations. when institutions kept funding systems our troops did not need,

he launched a war on waste. he challenged conventional wisdom with courage and conviction, speaking hard truths, saving hundreds of billions of dollars that can be invested in the 21st century military. he made it his mission to make sure this department is serving our troops in the field as well as they serve us. today, we see the lifesaving difference he makes in the mine- resistant vehicles, and the unmanned aircraft, the shorter medivac times in afghanistan, the determination to give our wounded warriors the world-class care they deserve. bob, this may be your greatest legacy of all, the lives you saved and the confidence you gave our men and women in battle who knew there was a secretary of defense who had their backs,

loved them, fought for them, and did everything in his power to bring them home safely. let me also thank becky for her extraordinary support of our extraordinary military families. she has been there day in and day out. i know both bob and becky consider our troops to be like their own sons and daughters. bob, your sense of responsibility to them is profound. it is a responsibility we've shared as leaders who have served every day in a time of war. we are the ones who send them into harm's way. we visit them in the field we are the reason they're there. we have stood with respect at

dover when our soldiers of made their final trip home. we have held soldiers in our arms as they grieve the loved ones they gave to america so our loved ones could be secure. we know the heavy wages of war. we know america's shared obligations to all who serve. today, we not only pay tribute to a remarkable public servant. we celebrate the principles for which he served and for which our nation stands. i believe the life of bob gates is a lesson, especially to young americans. it is a lesson that public service is an honorable support -- calling. we can pass on our country better and stronger to those who follow. our next secretary of defense,

leon panetta, has described to the same life of service. i am confident he will also lead the department with clear vision and a steady hand. in his willingness to become the first secretary of defense to serve under presidents of both parties, the integrity of bob gates is also a reminder, especially to folks in washington, that civility, respectful discourse, citizenship over partisanship are not quaint relics of a bygone era. they are the timeless virtues we need now more than ever. whatever differences of party or ideologies we may have, we can only keep america strong if we remember what keeps america great. that is our ability to come together and work together as americans for a common purpose.

finally as we face difficult challenges around the world and at home, let today be a reminder that the united states will meet the test of our times. we remain at war, but fewer americans are in harm's way. we will bring the wars we're into a responsible end. we will make fiscal choices responsibly. i am determined that our armed forces will always remain the best trained, best lead, best equipped fighting force in history. in an uncertain world that demands our leadership, the united states of america and our armed forces will remain the greatest force for freedom and security the world has ever known. this is the america, strong and confident, to which bob gates has devoted his life.

this is the america to which we rededicate ourselves. i can think of no better way to express my appreciation to someone i have come to admire and who might consider a friend, i can think of no better way to express the gratitude of the nation for bob gates than with a very special recognition. bob, this is not in the program, but i would ask you to please stand. as president, the highest honor i can bestow on a civilian is the presidential medal of freedom. it speaks to the values we cherish as a people and the ideals we strive for as a nation. today it is my great privilege to present the presidential medal of freedom to america's

22nd secretary of defense, robert m. gates. please read the citation. >> the presidential medal of freedom to robert m. gates, our nation's 22nd secretary of defense. he has selflessly dedicated his life to ensuring the security of the american people. he has served eight presidents of both parties with unwavering patriotism. as a champion of our men and women in uniform and their families, he has led the department of defense with courage and confidence during our wars in iraq and afghanistan and ensured our armed forces are better prepared for the conflicts of today and tomorrow. the united states honors robert m. gates for his extraordinary leadership and a lifetime of service and dedication to our nation.

[applause] >> thank you, mr. president, for those kind words and for honoring me and this department by your presence here today. i am deeply honored and moved by your presentation of this award. it is a big surprise, but we should have known a couple of months ago. you have gotten pretty good at this covert ps stuff.

[laughter] vice president, colleagues, friends, and family, thank you for being here today. i would like to congratulate leon panetta on his recent confirmation. after the 2008 election, he wrote an op-ed suggesting president obama retain me as secretary of defense. when president obama announced for my recommendation as a successor, i returned the favor. this country is fortunate that a statesman of his caliber and experience has agreed to serve again and at such an important time. my parting advice for leon is to give his -- get his office just the way he likes it because he may be here longer than he thinks. i would like to thank the members of congress here today. appreciate the gracious and

supportive treatment afforded to me by representatives of both parties. even when there were disagreements over policies and priorities, congress always came through for our men and women in uniform, especially for programs that protect and take care of the troops and their families. over the past few weeks, i have had my say on some weighty topics. on this the last stop of what has been dubbed the long goodbye, i would like to spend a few minutes talking about the men and women i have been fortunate to work with in this job. i would like to start with the two presidents i have been privileged to serve in this role. serving as secretary of defense has been the greatest honor and privilege of my life. for that i will always be grateful. 1st to president bush for giving me this historic opportunity.

and for the support he provided during the difficult early months and years on the job. then to president obama for his confidence in taking the historic step of asking me, someone he did not know what all, to stay on -- and for his continuing trust ever since. the transition from the bush to obama administration was the first of its kind from one political party to another during war in nearly 40 years. the collegiality, thoroughness, and professionalism of the transition were of great benefit to the country and a tribute to the character and judgment of both presidents. i have also been fortunate that both president provided me an excellent team of senior civilian appointees. when i took the post, the first and best decision i made was to retain every single senior official i inherited from secretary rumsfeld, including his office staff, most of whom have been with me to this day.

i have been fortunate to receive another first-class roster of senior officials from president obama. they have provided me with superb counsel and support on a range of difficult issues and initiatives. these and other achievements required respectful collaboration between civilian and military leadership. that has been a source of strength to the country. i have received wise, forthright, loyal counsel from the service chiefs and leadership of the joint chiefs of staff. a will is be grateful to them for their candor, cooperation, and friendship. above all, i want to recognize general pete pace and whose counsel got me off to a strong start. then to mike mullen, without his advice, effective leadership of the uniformed military, and our

close partnership, the record of the last several years would have been very different. mike never shy about disagreeing with me. he was unfailingly steadfast leak loyal to me and the presidents he served when a decision was made. he is the epitome of a military leader and officer, a man of supreme integrity, a great partner, and a good friend. the practice in spirit of cooperation is equally important in other elements of the government, especially those dealing with intelligence and diplomacy. the blows struck against al qaeda culminating in the osama bin laden rate exemplified a remarkable transformation of how we must fuse intelligence and military operations in the 21st century. with respect to the state department, my views have evolved over the years. i started out my experience in washington as a staffer on president nixon's security

council. as you might expect, the nixon white house was not exactly a hotbed of admiration for the foreign service. it was generally thought of as a bunch of guys with last names for first names who occasionally took time out to implement the president's policies. for much of my professional life, the secretaries were barely speaking to each other. with secretaries rice and clinton, i have not only been on speaking terms with them, we've also become cherished colleagues and good friends. i suppose giving a big speech calling for more money for the state department did not hurt, but we should never forget the diplomats and development experts are taking risks and making sacrifices in some of the least hospitable places on the planet. i speak for all our military in appreciating the contributions they are making every day to the success of our missions in

afghanistan, iraq, and elsewhere around the globe. in doing my utmost to support the troops downrange on these missions, i have spent a good deal of time venting frustrations with the pentagon bureaucracy. however, i did so knowing that the people most often frustrated by the pace of things in this building are the career civilian professionals who strive every day to overcome the obstacles to getting things done. as someone who worked his way up the ladder, i understand and appreciate challenges these public servants face and the sacrifices they make. what they accomplish does not receive the attention and thanks it deserves, know that i leave this post grateful for everything the civilians do for our military and national security. during a time of war, the top priority of everyone in this building must ultimately be to get those fighting at the front what they need to survive and succeed on the battlefield -- and to be properly taken care of when they come home. i have spent much of the last

two months visiting with these troops, first in military facilities around the u.s. and then in afghanistan. i was only able to meet a small sample of those deployed downrange, it was important for me to look them in the eye one last time and let them know how much i care about them and appreciate what they and their families do for our country. looking forward to this moment, i knew it would be difficult to adequately express my feelings for these young men and women. at least in a way that would allow me to get through this speech. yesterday a personal message from me to all of our servicemen and women around the world was published and distributed through military channels. i will just say here that i will think of these young warriors, the ones who fought, the ones who keep on fighting, the ones who never made it back, until the end of my days.

as as contemplating this moment, i thought about something becky told me in january of 2005 when i was asked to be the first director of national intelligence. i was wrestling with the decision and finally told her she could make it easier if she just said she did not want to go back to d.c. she said that we have to do what you have to do. that is something military spouses have said in one form or another a million times since 9/11 upon learning allowed one received a deployment notice or was considering another tour of service. just under five years ago when i was approached by the same president again to serve, her response was the same. as much as she loved texas a&m and our home in washington state, and as much as she could do without another stint in this washington, she made it easy for me to say yes to this job, to do what i had to do, to answer the call to serve when so much was a

stake for america and our sons and daughters into the boards. becky, we're really going home this time. your love and support has sustained me and kept me grounded since the day we first met on a blind date in bloomington, indiana, 45 years ago. i will shortly walk out of my office for the last time as defense secretary. it is empty of my personal items, but will still have over my desk portraits of my two and heroes and role models -- general dwight d. eisenhower and george c. marshall. it is from marshall that i take a closing thought, first delivered more than six decades ago in the opening years of the cold war. addressing new university graduates, he extolled what he considered the great musts of that generation. he said they were the development of a sense of responsibility for world order and security, the development of a sense of the overwhelming importance of the country's acts

and failures to act. now, as when he first uttered those words, a sense of america's exceptional global responsibilities and the importance of what we do or do not do remain the great musts of this dangerous new century. it is the sacred duty entrusted to all of us privileged to serve in positions of leadership and responsibility. it is a duty we should never forget or take lightly. it is a duty i have every confidence you will all continue to fulfill. thank you. god bless our military and the country they so nobly serve. [applause]

♪ [applause] ♪ [applause] ♪

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doodle dandy"] ♪ ♪

♪ yonder"] ♪ue ♪

♪ ♪ ["caissons go marching along"] ♪

♪ >> ladies and gentlemen, please stand and remain in position for the departure of the official party. [applause]

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♪ ♪

>> ladies and gentlemen, this completes today's ceremony. thank you for attending. enjoy your day. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> robert gates stepped down as defense secretary. he is being replaced by leon panetta and was sworn in on friday. today, senator rand paul talks about the debate over raising the debt ceiling, spending

issues, and entitlement programs. rep thaddeus macabre of michigan has announced his candidacy for the presidential election. you can see that today at seven on c-span. >> he decided several days before mckinley and arrived that he was going to kill him. he bought a pistol. he followed his whereabouts in the newspapers. they were reported in retail about where the president would be. he began tracking him. >> in 1901, self-proclaimed anarchist fired the fatal shots and william mckinley. scott miller looks at both him

and the president tonight. >> on wednesday, the federal reserve board approved its final rules on debit card interchange fees. the rules would allow banks to charge retailers 21 cents each time they swipe card at the register to make a purchase. you will hear remarks from the federal reserve chairman ben bernanke. this is about one hour. but the federal reserve has been given important new responsibilities under the act. we have been working diligently to institute the requirements under our purview. the rule we are considering this afternoon has been one of our most challenging role makings

under dodd-frank to date. we received well over 11,000 comments on our proposed rule. we have taken the time needed to review the comments carefully. they have been very helpful to us. the final rule reflects the number of changes suggested by the commager's. i believe the final rule we will discuss today gives careful consideration to the statutory language, the cost data available to us, and the complexities of the payments system. the board plans to monitor developments in a debit card market on an ongoing basis. the monitoring will include collecting and publishing data related to a debit card costs and interchange fees. this will help the board and issuers, merchants, networks, consumers, and congress to assess whether the statute and rules are effectively accomplishing their intended goals. and no staff has spent

significant time and effort on this rule making. -- i know that the staff has spent significant time and effort on this rule making. i want to commend them for their hard work. will now turn to the chair of the committee to discuss proposals. >> debit cards are a critical component of the retail payments system. they are an efficient form of payment and provide many benefits to cardholders and merchants. over the past decade, consumers have substantially changed their methods of payment and are increasingly using debit cards where they once relied on checks or credit cards. debit cards are accepted at about 8 million merchant locations in the u.s. and have become the most prevalent form of non-cash payments in the country. staff projects debit card volume

50 billion $5 transactions this year. growth is at double-digit rates. the success story has been marred by the level of discourse between merchants and issuers on the interchange fee issue. it has played out in the courts, congress, and at the board. the continued vitality of the debit card system requires balancing of the legitimate needs of depository institutions that issue the cards, the merchants that accept them, the networks to process them, and the consumers who are the customers of both the banks and the merchants. i hope the banking industry, retail industry, and card networks will work together in a collaborative manner to ensure

that card systems are designed in a manner that best balances the needs of all parties. i want to thank the staff who worked so tirelessly on this rule making. i believe the recommendations reflect careful consideration of the comments received and an appropriate implementation of the statutory requirements. i will now turn to mark to walk us through the final draft of the bill. >> i will be recommending the final rule for governing debit interchange fees and implement the dodd-frank act. it has to the main components. it establishes standards for assessing whether interchange fees are reasonable and proportional to the cost to the issues. it prohibits network exclusivity and dropping restrictions. since the release last

september, the board has received input from more than 11,000 commenters including merchants, processors, customers, government agencies, and members of congress. these raised numerous and often complex issues related to all facets of the proposed regulation. we have carefully considered the issues raised. the comments have provided valuable input into our rulemaking process and have led to a variety of revisions to the proposed regulations. i will provide a brief description of the comments received on each aspect of the proposed rule in my presentation. let me turn to the substance of our recommended final rule. i will summarize each major statutory requirement, the approaches to implement each in the proposed rule, and comments received on the proposal. for each requirement, i will then describe our recommended final rule. in developing our recommended final rule, we considered the

comments received, the language and purpose of the statute, the available data, and the practical results of various interpretations of the statute. the first major aspect of the final rule is the interchange fee standard. the statute requires the board to establish standards for assessing whether the amount of an interchange fee that an insurer receives for a transaction is reasonable and proportional to the cost with respect to the transaction. based on exemptions contained in the statute, standards do not apply to certain government- administered debit cards, certain other prepaid cards, or others that have access to less than $10 billion. the board invited comment on two alternative standards for assessing interchange fees. under the first alternative, and issuers would comply with the standard if it receives a fee that is not exceed the lesser of its allowable costs. an insurer could also comply

with the standard by receiving an interchange fee that does not exceed the level of safe harbor. the proposal recommended the cap be set at 12 cents per transaction initially with the safe harbor set at 7 cents per transaction. under the second alternative, an issuer would comply with the standard as long as it does not receive an interchange fee above the cap. that was again recommended to the 12 cents per transaction. proposed alternatives, the proposal to buy the allowable cost to be the average value of the issuer's costs of settling transactions buried with the number of transactions performed by the issuer over a calendar year. in other words, the average variable cost of authorization clarence and settlement. both were derived from information gathered through a survey of debit card issuers that the board conducted last fall. the board received numerous comments on all aspects of the

proposed standards, including the proposed definition of allowable costs and the two information approaches. issuers and networks overwhelmingly supported expanding allowable costs beyond the variable costs of operation and clearance. among the costs they argued should be included were fixed processing costs, network fees, and fraud losses as well as the costs of car production, customer inquiries, rewards, and account set up and maintenance. noted that theses protect against insufficient funds and that issuers are exposed to the risk of fraudulent debit card transactions. in contrast, merchants overwhelmingly supported the proposal to limit allow all costs to the average bear will cost of authorization, clearance, and settlement for each transaction. they argued other debit card related costs would not be

recouped by a vague or are not specific to a particular debit card transaction. they further argue the payment guarantee in the debit card transaction is not really a guarantee. merchants are frequently subject to chargebacks after the initial transaction and as a result have fraud losses. after carefully considering the comments, the staff recommends a broader range of costs directly related to affecting particular transactions be included as a basis for establishing the interchange fee standards. the statute is trucks the board not to consider costs that are not specific to a particular transaction. we have interpreted the provision to exclude costs that a debit card issuer would not incur in the course of effecting any electronic debit transactions such as corporate overhead, general account costs, general debit card program costs including marketing, research and development, and car production,

and delivery costs. the remaining costs would include those the statute explicitly instructed where to consider, the infamous to cost of clearing and settlement of a particular transaction, as well as other costs the board reconsider because they are incurred in the course of defecting a debit transaction. the other transaction costs, we recommend a low costs include network processing fees and other transaction processing costs such as the cost of network connectivity and processing and software. we recommend the costs of transaction monitoring be included as an allowable cost because these activities are integral to the authorization decision. we further recommend a portion of fraud losses incorporated as an allowable costs. issuers may incur losses for fraud they cannot prevent. allowing a portion of fraud losses to be recovered through interchange fees will not

eliminate the incentive for it monitors to monitor fraud. the cost varies with the amount of transaction. we believe the fraud losses are best incorporated. i have delorme component -- through an ad valorenm component. many of these, interest recognize the appeal of a safe harbor and acknowledge that the standard would be difficult to implement and enforce. although many issues argued against both alternatives, a significant number preferred alternative two overall charge of one, to issue a specific framework with the safe harbor intact. many of these, enter suggested raising the cap value to

reflect an expanded definition of allowable cost and to cover the cost of a larger percentage of covered issuers. merchant uniformly supported alternative one as being the most consistent with the statute. merchant commoner's generally prefer a more issue were specific approach because issuers would receive interchange fees tied to their actual respective cost. although some of these, enters the knowledge the cap on the safe harbor would make the interchange fee structure simpler to understand, which could increase -- increase transparency. dedicated a lower save par value advocating due to receive interchange fees above their actual allowable costs. large fraction of issuers to receive interchange fees above their actual allowable costs. similarly, merchants generally supported a lower cap to discourage issuers from incuring and compensated for excessively high costs.

we believe that the best reading of the statute's reference to an issuer and a transaction is to interpret those terms to refer to a representative issuer and a representative transaction rather than a specific issuer and a specific transaction. a approach based on a more specific reading of those terms would be virtually impossible as an issuer costs for each specific transaction which may vary cannot be ascertained at or time the issuer received the interchange fee. therefore, with respect to the implementation approach, we recommend that the final rule adopt a modified version of the proposed rule, that is, apliblgible to all covered issuers. under the final rule, the maximum permissible interchange fee would be the sum of a base component. we recommend that the base component set at 21 cents, which corresponds to the 80th percentile issuers average

transaction allowable costs as reported in the board survey of covered issuers. we further recommend that the component set at five basis points of the transaction value, ri flekting the median issuer's fraud losses as reported in the same sur vafr. each covered issuer permitted to receive an interchange fee that did not exceed the sum of two components without demonstrating the actual per transaction allowable costs. with respect to the statute's requirement that an interchange fee be reasonable and to portional to the cost of the issuer, we believe that the cap delineates a separation of a fee that's reasonable and not reasonable. moreover, because it's based on certain costs for affecting particular electronic debit transactions, the standard ensures that sfees are proportional to those costs as required by the statute. these interchange fee standards would be effective on october

1st, 2011. the final rule also contains provisions that prohibit sir couple vengs or avags of the standards. the statute authorizes the board to allow for adjustment to an interchange fee to account for an issuer's costs in preventing fraud from vided complying with standards established by the board related to fraud prevention activities. the proposed rule did not include a specific adjustment to the amount of interchange fees for an issuer's fraud prevention costs. instead, the proposal requested about comment of two broad approaches to designing standards. the first focused on general fraud prevention activities and costs. the second focused on recouping costs of new or substantial improved fraud prevention technologies. although commenters did not uniformly favor either proposal, they generally agreed that the board should not mandate use of specific technologies, merchant

commenters favored a requirement that an issuer adopt technologies that would decrease fraud to be eligible for the adjustment. in contrast, issuers and payment card networks preferred a nonprescriptive approach to allow issuers the flexibility necessary to tailor their fraud prevention activities to address most effectively the risk faced by the issuer associated with changing fraud patterns. we believe that the dynamic nature of the debit card fraud environment requires standards that permit issuers to determine the best methods to mitigate fraud losses for the size and scope of their program and in response to frequent changes in fraud patterns. as a result, we recommend that the board issue an interim final rule with a request for comment that basis eligibility for the fraud prevention adjustment on general standards for an effective fraud prevention program rather than prescribing

specific measures or technologies. the general standards require an issuer to establish policies and procedures, reasonably designed to maintain an effective fraud prevention program. as in the case of the interchange fee standards we considered a variety of approaches for implementing the fraud prevention adjustment. we recognized that both issuers and merchants make substantial investments in fraud prevention and the statute does not require the board to set an adjustment so that each issuer fully recovers the costs. as a result, we recommend that the fraud prevention adjustment be implemented through an addition through the cap applicable to all covered issuers. based on information about fraud prevention costs gathered through the board's survey of covered debit card issuers we recommend that the board permit a fraud prevention adjustment of no more than one cent per transaction which is based on the median issuer's fraud preconvenience costs as reported in the survey, less the cost of

transaction monitoring included as an allowable cost in determining the interchange fee standard. when combined to the maximum interchange fee under the standard, a covered issuer eligible for the fraud prevention adjustment could receive an interchange fee up to approximately 24 cents for the average transaction. a suggested by virtually all commenter it is fraud prevention adjustment effective on october 1st, 2011. we may recommend that the board make revisions to the adjustment as appropriate at a later date after we consider the comments received. in addition to rules related to interchange fees the statute requires the board to prescribe rules related to the routing of transactions. first, the board must adopt rule that is prohibit issue herbs and payment card networks from restricting the number of networks on which a debit card transaction may be processed to

fewer than two unaffiliated networks. second, the board must adopt rule that is prohibit issuers and networks from restricting the ability of merchants to route debit card transactions over any network that may process such transactions. these provisions apply to all issuers including small issuers and certain prepaid card programs that are exempt from the interchange fee restrictions. the proposed rule included two alternatives for implementing the prohibition on network exclusively arrangements. alternative "a" requires a debit card transaction routed over at least two unaffiliated networks irrespective of the authentication of the authentication methods on the card. alternative "b" would require two affiliated networks for each authentication available to the card holder. under either alternative, issuers would be prohibited from restricting merchant routi inin choice among the networks enabled on a card.

issuers in payment card networks universally preferred alternative "a." it would impose less severe operational burdens and would not have as large a negative effect on the development of new authentication methods. merchants preferred alternative "b", which they believed would provide the broadest routing choice. such as many online transactions. merchants also believed this alternative would not require substantial operational changes for issuers and networks. we recommend the final rule adopt alternative "a." the recommended final rule requires two unaffiliated networks to be enabled on each debit card without regard to authentication method. under the final rule, an issuer could comply by having one signature network and one affiliated pin network, or

alternatively two unaffiliated pin networks or two unaffiliated signature networks enabled on a card. we believe this approach is consistent the statute, which prohibits issuers of payment card networks from restricting the number of payment card networks on which a debit card transaction may be processed to fewer than two unaffiliated network. moreover, the statute does not require two payment card networks available to the merchant for each method of authentication. we further believe this approach would minimize the compliance burden on institutions, particularly small issuers, would present less authentication methods. the statute does not establish an effective date for the exclusivity and routing provisions. under the final rule t prohibition would be effective april 1st, 2012 with respect to

issuers and october 1st, 2011 with respect to payment card networks. the final rule includes a delayed effective date for certain prepaid cards that may face technological or operational difficulties with complying by april 1st, 2012. the effective date on routing restrictions would be october 1st, 2011. the earlier effective date will enable merchants to take advantage of enhance erouting flexibility. my colleagues and i would be happy to answer any questions you have. >> thank you very much. thanks to the staff again for a tremendous amount of work on this very challenging rule. we've been talking about issuers and merchants and networks. the ultimate beneficiary, we hope, is the consumer.

how do you think this rule will affect consumers? >> i'll answer that question. it's very hard to predict the effect that the rule will have on consumers because the effect is going to depend on the actions taken by various participants in the payment -- in the debit card system. on the one hand, card issuers are likely to implement changes in response to introduction interchange fee. although the staff thinks it's unlikely that issuers would actually impose fees on debit card transactions, per se, or engage in other activities that are designed to steer their customers away from using debit cards, we would expect that at least some cards issuers would

change some terms facing their account customers, such as reducing or eliminating rewards associated with debit cards, perhaps imposing certain fees on deposit customers more generally or reducing benefits on deposit customers more generally. at the same time, it's likely to reach consumers in the form of lower prices. the extent to which the savings do get passed on will depend on the competitiveness of the markets in which the merchants operate. merchants who operate in highly competitive markets with low margins are likely to pass on substantially all the savings to their customers. merchants in less competitive markets may keep a larger portion for themselves.

if they continue their current practice of not varying prices with payment method, any savings that do get passed on will be shared by all consumers, regardless if they pay with debit cards or other forms of payment. see the effect on any individual consumer will depend on their p behavior. do they use debit cards or not? on the competitiveness of the merchants with whom they do business, on any changes in merchant acceptance of various payment card methods and on the bank's reactions in terms of how they adjust any account terms. so it's hard to predict how any individual consumer will be affected and in aggregate, how all consumers will be affected. we can't say in advance how those are going to play out. >> thanks. >> one of the differences -- one of the most important differences between this rule and the preliminary rule is the expanded set of costs that you are allowing in calculating

interchange fees. can you talk about how you decided which costs would be included? maybe what the legal reading is that supports that. >> let me fry to answer that one. we first focused on a statute that prohibits the board from considering. those were costs not specific to a particular debit transa. as mark alluded to in his presentation, that would include corporate overhead, audit, billing department, hr department, those kinds of costs. what the board is allowed to consider are the costs that are specific to particular debit card transactions. those would include the costs the board proposed to permit as allowable costs. the authorization clearance and settlement, which the statute in fact requires the board to consider. but then a range of other costs

that are also specific to particular transactions. and we considered those, and we looked at the data we had on those. some are included in the final rule and some are not. for example, fixed costs of software, hardware, that goes towards affecting a particular transaction. those are included in the proposed fee standard. other costs such as rewards, customer inquiries, arguably they are particular to specific transactions, but for the reasons we laid out in the federal registry notice, those were not included in the interchange fee standard. >> okay. thank you. >> thank you, mr. chairman. mark noted in his presentation that the proposed interchange fees standard has to meet the

statutory requirement that the interchange fee be reasonable and proportional to an issuer's kogs. i noted in looking through the public comments that a number of commenters indicated that in rankings for public utilitieuti the interpretation that would typically be given to the term reasonable would include some markup to allow for a fair rate of return. >> so getting back to the costs that the board is prohinted the from considering those would be costs not specific to a

particular transaction. a rate of return overall on your debit card program is difficult to attribute to a particular transaction. i would also say many of the rate making cases use a term just in reasonable rates. we have a different term here. reasonable and proportional to cost. congress wanted us to rely on this. they could have used that term. they did not. we were interpreting it differently. >> thank you very much. >> one other question is i wonder if you talk a little bit about what impact you think this rule is likely to have on innovation in the payment system more broadly. i noted some commenters were concerned that this is a rule that could inhibit innovation.

i wonder what your perspectives are. >> so we did receive a lot of comments to express concern about the potential effect of the rule on innovation. the commenters would note the effect and development of authentication methods. like new form factors, like mobile payments. or new fraud prevention technologies. there were commenters that expressed concern of inhibiting the development of new technologies. there were also commenters, however, who wanted the rule to be applied evenly across new as well as existing technologies in order to create a level playing field, so as not to advantage one type of technology over another. we also recognize the importance of establishing basic ground rules that create a level playing field across different types of technologies. so the final role does not

generally exempt innovative technologies for the provisions of the rule. we think that this does establish the level playing field that some of the commenters were looking for. and also creates regulatory certainty for potential innovators going forward. at the same time we recognize that certain aspects of the rule could have an effect on innovation. that is going to impact the way in which they develop those technologies. but there are certain features of the recommended final rule that should have a mitigating effect on the negative effects of innovation. in the exclusivity portion of the rule, we are fot requiring multiple networks associated with each authentication method. this should help an innovator not have to open the technology to other parties.

we are not using a technology specific standards. there will not be dictates about technologies are or are not acceptable. the market can develop the technologies that are most effective. ultimately there will be an effect on innovations as the innovators have to meet the restrictions associated with the rule. certain aspects of the rule should mitigate some of the effects. >> thank you. governor duke? >> thank you, mr. chairman. following up on the chairman's questions about impact on consumers. other countries have implemented restrictions on interchange fees. could you talk about the experience they've seen respective to account holder fees, savings passed on by retailers, changes in discounts for different methods of payment? >> sure. there are two types of scenarios one could look at when looking at other counteds.

one would be places where there's a government intervention to lower interchange fees. the second would be countries with a payment card system with low ore zero interchange fees. it can be hard to draw conclusions about the affect of interchange fees on the outcome for consumers, banks and payment card networks. there are a lot of moving parts. there are a couple of general conclusions one can draw by looking at case studies in other countries. in response to change and interchange fees due to government intervention, there are often changes in account terms for card holders. for example, in australia when the reserve bank of australia lowered credit card interchange fees in their particular case, rewards for many cards went away. certain account fees were less attractive to the consumers. so a first lesson would be that there is generally some

adjustment in terms of the account terms for card holders. but at the same time, the evidence doesn't suggest that having a high interchange fee is necessary for the debit card or payment card system to function effectively. in australia when they cut the credit card interchange fees, banks continued to offer the kr credit cards and consumers continued to use them. in canada where there is no interchange fee on pin debit transactions, pin debit remains an important part of the deposit relationship between banks and consumers. we will expect some adjustment in terms of the fees, but we wouldn't expect to see a cig capital contraction in the supply of or demand for debit card services based on evidence in other countries. in terms of the effect of the interchange fee regulation and other countries on prices, that can manifest itself in two ways.

first is in terms of the merchant discounts that merchants receive or pay. i'm sorry. and i think there is evidence that many of the decreases in interchange fees are passed through in merchant prices. in merchant discounts. the evidence for consumer prices is much weaker. there are so many factors buffeting consumers prices that there's not been strong evidence documenting that any decreases in interchange fees and subsequent decreases in merchant discounts are passed through in terms of lower consumer prices at the point of sale. if you were trying to determine what the impact would be on the consumer here, are there any authorities you would need to collect data that you don't have today? >> well, we currently under the statute have authority to require payment card networks and issuers to provide us

information, particularly information helpful for us in establishing the interchange fee standards. it doesn't explicitly give us the authority to require that merchants, for example, give us information or other parties, but we can have surveys that they can voluntarily comply with in terms of providing us that information. >> thank you, mr. chairman. >> governor? >> no questions, thank you. >> governor? >> yes, thank you, mr. chairman. looking at how issuers cost accounting systems capture cost data i'm wondering if there's any external sources of cost estimates that were used in craft i crafting the regulation to serve as a way to cross check what the staff saw that came from the

surveys put out by the fed. >> we didn't explicitly use the e ternl cost data. we used the data we gathered through our survey. having said that, we did look at various external cost studies associated with issuer costs. there are various problems, including the cost accounting systems can differ allot across firms. and in addition, whether or not a firm outsources things to a third party may affect their ability to identify certain types of cost components. and finally we recognized as we were performing the incentive effects associated with reporting for respondants enganged in the exercise we were looking at. but when we did look at the external studies, performed by consultants and processors and payment card networks, the

numbers they got were largely comparable to what we received from our su va. there are caveats associated with that in they didn't survey the same issuers we surveyed. the level of granularity, we don't know how well that compares. at least it's sort of an aggregate level. their estimates are largely comparable to what we got. which makes us think our numbers are not radically off or the surveys are not radically misreported in our formulation. >> thank you. >> okay. thank you. at this point i would like to hear positions. let me start with you, vice chair. >> thank you, mr. chairman. i supported the option of the proposed final rule on debit card interchange fees and routing. i want to commend and thank the staff for the pain staking

effort they've invested in preparing this final rule. importantly staff carefully analyzed over 11,000 comments that were received, and these comments raised appropriate issues relative to the implementation of the durbin amendment. they were extremely helpful in guiding the revision process and in particular, as mark mentioned, significant changes have been incorporate d in the final rule in response to the comments we received. in crafting the final rule, staff assessed the legal requirements governing rule making under section 1075 of dot frank. and to the extent possible also considered the likely economic impact to result from alternative implementation choices. the final rule carefully adheres to congress' mandates relating to network exclusivity and

routing, and to its direction, to establish standards for assessing whether the amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit card transaction is reasonable and proportional to the cost incured by the issuer with respect to the transaction. the final rule strives to ensure that issuers retain incentives to reduce operating and fraud costs over time. and it aims to avoid consequences that could be dilitarious. a long-term goal of the federal reserve is to facilitate a transition from a payment system reline on paper check and cash to more efficient and convenient electronics based technologies. debit cards have helped speed that transition. staff have recognized the

importance of establishing an environment that will be conducive to continued innovation in the payment system in the years ahead, one receptive to the adoption of promising new technologies. they further sought to establish a standard that will be transparent and reduce the burden on supervision. the legislation directing this rule making was motivated in part by the fact that interchange fees in the united states have increased substantially over time. where as in those countries where interchange fees have historically been low or have been limited by government intervention, the use of debit cards has remained robust this escalation may well reflect a market failure. economic theorys suggest, however that the determination

of prices in two sided markets like the debit card network are complex, regarding important network and usage extern externalalities. the literature recognizes that networks will valuable because they can serve to reduce transactions cost, and the pricing and strategy on such two-sided platforms will be influenced by the network effects. our notice provides economic analysis pertaining to the cost and benefits of the proposed rule for the key affected groups. merchants, large and small financial institutions, and banked and unbanked consumers. the ultimate welfare effects are impossible to ascertain in advance. the impact of the rule will

depend on the behaifrl responses of all parties. how they respond to the reduction in revenue from lost interchange fees and their pricing and product offerings. how consumers respond in their choice of payment methods. whether merchants pass through to consumers any interchange fee cost reductions and how market participants more generally respond to the interchange fee network exclusivity and routing provisions, which could affect pricing and competition throughout the broader retail payments market. these responses cannot be easily predicted based on existing information. because this will affect the livelihood on consumers, businesses and financial institutions large and small, as well as the evolution of the payment system, it will be

important for all of those interested in sound public policy to study and carefully assess the impact of this rule on the well being of the affected groups and the fishtdsy and dynamics of the payment system in the years ahead. >> thank you. governor duke? >> thank you, mr. chairman. i want to start by acknowledging the quality and quantity of work that's gone into this proposal. in the initial proposal and the final the staff demonstrated the comprehensive understanding of the structure and economics of debit interchange. the individual members of the team brought their own experience, knowledge, insight, creativity and perhaps most importantly patience. this has not been an easy law to implement. i believe every effort has been made to choose carefully from among the schemes possible under

this statute. issuers, networks, merchants consumers and other members of congress comments forcefully and passionately. the comments received were often in opposition to one another. as i read through each section, i concluded the final decisions reflect thoughtful attention to the positioned argued by all sides. i would like to comment on the sections on standards, network exclusivity, exemptions and the anticipated effects of the rules on various parties. with respect to standards, we first had to address which costs should be included or excluded in determining whether the interchange fee was reasonable and proportionate to costs. within the costs determined to be relevant many establishing the cap we had to determine where to draw the line. i believe the cost included is reasonable. further i believe the decision to follow alternative the establishment of a cap is the

best approach. i think that it is permtded by the statute and that the advantage of simplicity in transparency will lead to more effective implementation. this creates an incentive to reduce costs as the amount is recalibrated with updated information. i believe the choice of alternative "a", the requirement that cards be enabled with two unaffiliated networks without regard to authentication method is the correct option. it meets the requirements of the statute in a way less complicated and costly to implement than vk two networks. it also accomplishes changing the dynamic network for payment networks by allowing merchants to choose the lowest cost

routing available. and it would not require pioneers to wait for a second competing network to become available. when i think about except issuers that i run into problems. the statute stops three administrato administrators. reloaded general purpose prepaid cards not marketed as zbift cards. we received numerous comments expressing concern that the kemgs would not be effective in practice. i agree with this concern. indeed when i ask about the exemption at the previous board meeting, the staff acknowledged there was no way to no for it would be effective. the staff pointed out then and in the final rule that the statute will permit but not do require the networks to establish higher interchange fees for exempt issuers than for covered issuers.

we have way way to know if or how this will work. we have no authority to enforce such a structure. i applaud the decision to provide networks with lists of exempt small issuers in an effort to save them the administrative costs. the other method seems just as likely to work to reduce the incentives as to create such an incentive. we plan to survey issuers and networks and publish a list of fees. this could enable exempt issuers to find the network with the most favorable rates. it could just as easily leave merchants and acquirers to route away from the networks.

if you define it as the cost or loss of revenue resulting from regulatory action. small issuers may be held to an interchange fee targeted to be reasonable and proportional to costs incured by larger institutions, but because they were exempt, the cost incured by smaller institutions were not shown. i believe it was a desire not to impose the burden on them. the exception may not work for government administered program or prepaid cards. i do recognize that small institutions can offstet the costs by charging higher customer fees for debit cards checking accounts or other services. debit cards are not a stand alone service but rather one of many methods of accessing a checking account.

prepaid cards are stand alone services. the reduction in revenue can only be offset. and profit required in the first place can only come through fees charged by government entities or the card holders using them. in a time of austerity at every government level, a time when governments including the federal government are issuing benefits electronically to save the cost of issuing paper checks it seems unlikely that governments who contract will be in a position to absorb the additional costs so the fees will fall to the beneficiaries who use the cards. if the exception cannot be realized anyway, the incentive not to charge overdraft fees and to allow a single fee withdraw in order to qualify would be negated. i read with great interest the section concerning anticipated effects of the rule on various parties. i could not find any study of

another country's experience that offered convincing evidence as to the ultimate impact on con suners. we are unsure what the ultimate effects may be. i would hope in the future we would undertake a study to quantify the overall effect of this rule on consumers and to this the extent we don't have the authority to gather the data required to conduct such a study, i hope we'll request such authority from congress. finally, i would like to comment on the unavoidable impact, higher fees on checking accounts. one of my first projects was the study of banking account charges. i was working for a community bank contemplating service charges on checking accounts to offset the likely interest expense associated with now accounts, which were expected to be authorized in coming legislation. they were very expensive to process. we saw a ruk in the number of the smaller accounts and a

corresponding reduction in expense significant enough to improve profitability. years later as more and more banks brought back free checking it took me a while to figure out what had changed. until i discovered they changed the dynamic and made the low balance high transaction account profitable. now i have every confidence in the industry and in small credit unions to find new product models to restore profitability and checking account products significant to their business. it's likely to come at the expense of less accountability. the experience of other countries would suggest overall usage of debit cards for payments would not decline significantly as a result of the regulation but as fees for checking accounts rise, i would expected more consumers to turn to prepaid debit cards. i am concerned about the level

of consumer protection covering prepaid reloadable cards. the work required to implement other parts of the act, we couldn't get to it before the time came to transfer regulatory responsibility to the consumer financial protection bureau. i'm proud of all the rules we did propose, but i wish we would have done more on this front. i can only call on you to watch developments in the market and place a high priority on revisiting consume eer protection issue with prepaid cards. mr. chairman, i'm appreciative of all the work that's gone into this role. but given my conviction that the exemptions will not work in practice, cannot support the burden on small issuers and the highest cost on issuers and recipients of government benefits that will result if we can't find a way to make the exemptions effective. for that reason i oppose the

final rule. >> thank you, mr. chairman. let me explain the standard i imposed on myself by judging the recommendation from the staff. it's a two-part standard. first, as would be applicable in any action that we take the question is whether the proposal is consistent with the intent of congress as manifested in the language of the statute. but second, i think we have to toe focus on the the fact that we are required to act here. this is not a question of discretion on our part whether to act. so the second part was whether i have a concrete alternative proposal that would better realize my own policy preferences while also remaining consistent with the statutory language. with respect to the consistency

of the propose d regulation, i believe the staff proposal is consistent with the regulation of the statute. as discussioned in the register notice circulated by the staff. and as mark alluded to in his presentation a few moments ago. there are some possible readings, such as one to craft standards to make an exception to entail enormous levels of uncertainty in the part of issuers, networks and merchants alike as to what fees were acceptable. here and in other areas the staff has rightly opted instead for permissible readings of the am biggous provisions with sound economic incentives and greater certainty for all relevant actors. still there are provisions whose

language does not admit interpretations that some may have preferred. for which there may be good policy arguments. not on economic grounds, but on the grounds of statutory language would not admit that interpretation. i have a concrete alternative to sound policy positions while remaining consistent with congressional intent. while i share those concerns, i don't have an alternative consistent with the language of the statute that would better achieve the statutory aims.

focusing on what the staff proposal was. so i do support the proposed regulation as presented by the staff. they have done a heroic job of simulating the 11,000 comment water levels. and modifying the proposal on the basis of all these comments and questions. so as to improve it substantially. i'm sure, i'm positive there are many mer chabts issuers, consumers and networks which would want to change much of what has been proposed.

it's on those grounds i agree with the staff recommendation. now, there is one matter on which congressional intent was quite clear. and that was the desire to exempt small issuers for the limits on interchanged transaction fees imposed by the statute. unfortunately, though, the statute does not give us the authority necessary to assure achievement of that aim. there is reason to hope the aim will be realized as explained in the federal registry notice, but it's by no means certain. for everyone's convenience, i did write up this proposal i don't know if you can get it circulated. i won't spend a lot of time on it. i thought it was useful for people to see the language. it basically asks that by the end of six months following the effective date of the rule that

the board staff should establish separate interchange fees and secondly, with respect to networks that have established such separate schedules, how the interchange fees received by exempt issuers compare with those prevailing before the rule became effective. and i think that's a relatively straight forward thing to do based on the kinds of information that we contemplated them this will require some expenditures, time and resources beyond the kind of monitoring that was contemplated. that would be by the end of 18 months following the effective date of the rule, the staff determined and report to board on three matters. first changes in exempt issuers,

changes over this period. second, whether there's evidence that merchants have rejected debit cards of customers of exempt issuers and third, how the network exclusivity provisions from which these issuers reserve course not exempt have affected small issuer costs. i recognize ad second and third in particular will not be susceptible to comprehensive study but in an effort to gather relevant information will be useful for us for the affected parties and for the congress in assessing whether the intended exception was effective. i don't know how you want to proceed with this. kbl r. >> i agree. it shouldn't be a formal amendment. we should make it a sensible board. and instruct the staff to carry it out subject to any

feasibility issues that arise in the process. is that acceptable? >> that's fine. >> let's finish with you and then before we vote on the full rule i would like to hear views on her suggestion. >> needless to say, it's been enormously controversial. speeches were crafted lawsuits were filed. millions of lobbying dollars were spent and meetings have occurred. debates on the statutory provision and the proposed rule have been robust and acrimonious. i want to start by acknowledging the work of the exemplary staff here who handled the work neither as a crawl nor as a

sprint, but handled it as the marathon that it was. they worked diligently and effectively and diligently to make sure we fulfilled the requirement set out in the law. the law states the board shall prescribe regulations. and that mandate is what brings us here today. we are fot at liberty to say no. the staff proveeded with the utmost of good faith and consider ad number of alternative formulations it has attempted to craft a regulation as close in approximation to this congress' intent as possible to create a standard capable of being complied with and capable of being examined for and that minimizes as much as the language provided by congress allows the possible of adverse or perverse economic incentives.

i also want to thank all the entity who is have informed this rule making through their submission of public comments. comments prepared by groups and institutions for whom the cost is a large part of their budgets. one issue consistently trazed is the importance of ensuring they are reimbursed for legitimate debit card costs. this was a theme in comments from consumers as well as comments for banks and credit unions. this final rule, while not inclusive of all costs is inclusive of a broader swath of costs than originally proposed. this supports an interchange fee

higher than the initially proposed fee and permits a recovery of costs by the vast majority of issuers of debit cards. because this leans towards the inclusion of all permissible costs, there's little information for this rule alone to be the basis for making those banks and credit unions that operate officially less accessible the federal reserve needs to continue to pay close attention to this result as well as how the regulation affects small banks and credit unions which often provide safe, lower cost financial products to millions of americans. one virtue of the board's final rule is it provides the ability to watch whether a two-tiered price structure is maintained or

erode eroded we need to focus on the the future of payment methods exempt from the law. in particular, what will this rule mean in terms of the development and use saj of prepaid, reloadable nongift cards and from the perspective of the consumer will different types of payment methods provide americans with the ability to have their poor financial needs met in our economy. i want to underscore my colleague's unease. when a regulator has to intervene to better align pricing with costs, what market must be working less than competitively. we're only doing what congress said. it's no secret they had

significant concerns about escalating debit and interchange fees. by some estimates those fees amounted to $16 billion in 2001 and stood at $48 billion in 2009. these have a disproportionately harmful effect on the 25% of the unbanked population and other consumers that pay by cash and checks since the consumers never receive the benefits of any card reward programs funded by interchange fees. the bottom 50% of income earners pays $66 # million more in higher prices to subsidize $554 million in payment card rewards. whether we ultimately disgreat on the functions, it appears that we have no choice in this matter but to adhere to congress's directive, even when the guide posts for achieving requirements are far from clear.

the proposed rule is a worthy attempt, and i recommend it move forward. >> thank you, governor. this was a difficult rule. i'm appreciative of the staff's effort. i think the final rule shows a lot of responsiveness to the many comments that we received, and i do think it's a good faith and carefully executed attempt to implement the will of congress in setting these parameters. the concerns that i have had have been making the exemption for smaller issuers effective. they are not exempt from the network if exclusivity rule, subject to the same forces that others will be subject to and the federal reserve does not

have the power to require networks to maintain a two-tier pricing system. they l give us the best shot at making that effective. it's described in more detail in the rule we intend to set up a transparent system in which we will regularly publish the interchange fees that networks collect for exempt and nonexempt issuers. we will monitor the effects going forward. if it doesn't work we'll know and think about what else can be done. it's encouraging many networks have maintained a two-tier system. i hope they will follow through with their commitments and those network who is have not yet committed will consider doing so. given that i think this is is

best available solution that implements the will of congress and also makes economic decisions. for example, the use of a cap both simplifies supervision and is also best for inducing cost min mization by issuers, i will support the rule. let me ask my colleagues if they have any questions or comments on the informal instruction to staff and see what the response is to that. >> i'm supportive of the proposal. >> as am i. i am algs. >> as we vote on this as we vote on this rule, then. we'll do that with the understanding that we will continue to monitor various aspects of the interchange

market. and we will use the information, including updates and costs in thinking of appropriate measures in the future. i need a motion. >> moved. >> second? >> second. >> let's go around. >> i support. >> i'm in favor. >> i support. >> i do as well. the motion carries. i thank the staff. thank the audience. the meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]